When To Sell Your Business

business objectives to sell

SELL YOUR BUSINESS WHEN YOU MEET THESE 3 OBJECTIVES

When to sell your business is a huge decision. It usually arrives when three points converge.

In this guide, we outline three critical objectives to achieve BEFORE selling your business. Once you achieve these, you can ensure a seamless transition into the next phase of your life.

Objective 1: The Desired Business Value is Achieved

Before you decide to sell your business, you need to ensure that your cash flow is at its optimal level. This is a critical factor that potential buyers will assess when valuing your business.

They will also calculate your seller’s discretionary earnings (SDE), which represents the true financial performance of your business and reflects the earnings available to a new owner, including the owner’s salary, perks, and non-essential expenses that are not vital for the business’s day-to-day operations.

necessary financial documenst
  • Federal Tax Returns: Your tax returns provide a comprehensive view of your business’s financial health, including deductions, income, and expenses.
  • Cash Flow Statements: Cash flow statements reveal how money flows in and out of your business, helping to assess its liquidity and financial stability.
  • Profit and Loss (P&L) Statements: P&L statements help identify your business’s revenue, costs, and overall profitability.

Ultimately, your broker calculates your free cash flow, and then will multiply it by the multiple buyers are willing to pay. Here is a general breakdown of what you can expect:

  • Under $500K: 3x to 4x (valuation range $1m to $2m)
  • $500K to $1m: 3x to 5x (valuation range $1.5m to $5m)
  • $1m to $2.5m: 4x to 6x (valuation range $4m to $15m)
  • $2.5m to $10m: 6x to 10x (valuation range $15m to $100m)
  • $10m to $25m: 10x to 20x (valuation range $100m to $250m)
  • $25m and up: 25x+ (valuation range $600m and up)
business broker calculates

You decide your ideal number to sell. You can discuss your exit strategy with a business broker at Brentwood Growth. 


Objective 2: The Value Fits Into an Overall Financial Plan

SHORT-TERM FINANCIAL STRATEGY

First, it’s essential to engage in comprehensive tax planning. Optimizing your tax strategy can help minimize your tax liabilities, resulting in a higher net profit from the sale. Collaborate with a business broker to identify tax incentives and credits that can be utilized to your advantage.

Cash management is another critical aspect of your short-term financial strategy. Maintaining healthy cash flow is essential, as it reflects the financial stability and viability of your business. Work to streamline your operations, improve collections, and minimize outstanding debts to bolster your cash reserves.

LONG-TERM FINANCIAL STRATEGY

While your short-term strategy prepares your business for sale, your long-term financial strategy is equally vital, focusing on your financial well-being post-sale. 

First, consider your personal financial goals and objectives. If retirement is on the horizon, explore various retirement plans and investment options. A well-thought-out retirement plan ensures that you have the financial security and resources to enjoy your post-sale life to the fullest.

Wealth preservation is also a key component of your long-term strategy. As you generate proceeds from the sale, it’s important to protect and grow your wealth.


Objective 3: Lifestyle Priorities Change and You Are Ready to Follow Through

Selling your business is a monumental life event, and it extends far beyond financial considerations. When you sell your business, you’re not just transferring assets; you’re transitioning into a new phase of life. To ensure a successful transition, it’s essential to define your post-sale lifestyle clearly. 

Start by envisioning how you want your life to look after selling the business. Consider retirement plans, travel adventures, potential new business ventures, or any other personal goals you’ve held off on pursuing.

EMOTIONAL PREPAREDNESS

Selling a business can be an emotional rollercoaster. It often involves letting go of something you’ve poured your heart and soul into. 

Acknowledge that the sale might stir up a range of emotions – excitement, anxiety, sadness, and relief, to name a few. To help manage these emotions, consider seeking support from various sources. Lean on your family and friends for emotional support and understanding. Their guidance and encouragement can make a significant difference during this transition.

LEGAL AND ADMINISTRATIVE TASKS

Selling your business also involves meticulous attention to legal and administrative details. Ensure that all necessary legal and administrative tasks related to the sale are well-organized and completed.

This includes the preparation and review of contracts, agreements, and any other documentation essential for a smooth transition. Make sure that all your affairs are in order, and that your legal and financial obligations are met. A clear and organized administrative process ensures that the business sale proceeds smoothly and minimizes potential roadblocks or disputes down the road.

Contact the Experienced Business Brokerage
at Brentwood Growth

In order to receive the highest value for your business, you need to prepare well in advance.

A business valuation not only shows what your company is worth, but also helps you determine when is the best time to sell. You may be better off selling now or waiting for more growth. Regardless of your strategy, Brentwood Growth can help.

Receive your FREE complimentary assessment today and get started with your exit strategy.

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