Chicago, IL. When small business owners consider selling their business, should the focus of their business change or should it remain the same as in previous year? "Their focus should definitely change," says Glory Borgeson, president of Borgeson Consulting, Inc., a business development firm.
"All business owners, regardless of their level of success, should change their focus once they decide to sell their business 2 to 5 years down the road," claims Borgeson. "In the years when owners are not in the market to sell, their bottom-line focus is often on reducing taxes. For example, they might pay themselves more salary and bonuses, or increase expenses in other areas in order to reduce net income, thereby reducing corporate taxes. Once they consider selling, however, the focus needs to change to increasing net income, even if it means paying more taxes until the business sells."
For business owners considering selling, focus needs to change in other areas as well to make the business more attractive to potential buyers. Borgeson suggests going through the financial statements and financial indicators with a fine-toothed comb.
"Owners need to consider which areas of their existing financials are already attractive to potential buyers and which are not," suggests Borgeson. "For example, do the receivables turn quickly or too slowly? For a certain expense that seem high, would a buyer 'inherit' that expense as is, or, in a buyout or merger, would that expense go away?"
Once problem areas are identified, they need to be remedied. Set goals for making changes. "The important thing is to give yourself and your business enough time to make necessary changes, and for those changes to reflect in your financial statements for at least one fiscal year," says Borgeson.
To accelerate through the changes needed to get your business in shape for sale, consider enlisting some help. A fresh perspective on your business may be just what you need to make your business more attractive to potential buyers.
It could be said that a business is worth whatever potential buyers are willing to pay for it. Meanwhile, both simple and complicated business valuation formulas exist that attempt to assign a dollar value to a business. For service businesses, a simple valuation method often used is 5 to 7 times annual net income. For manufacturing concerns, the formulas are more complex.
Regardless of the valuation method used, remediating problem areas and increasing net income are the surest ways to increase your business' value to potential buyers and to ensure a successful sale.
For more information regarding business development issues, contact Glory Borgeson at www.borgesonconsulting.com or
by e-mail: Glory.Borgeson@borgesonconsulting.com
by phone: 630-653-0992