How to Value Your Business and Prepare It for Sale

Letting go of a business can be a challenge when you’ve invested time and energy to build it from scratch. Your persona may be so intertwined with the business that selling it seems impossible. But you have limited time and energy reserves. Therefore, it’s important to appreciate the need to pass on your business at the right time, to the right people and for the right consideration.

Signs That It’s Time To Sell

Many people don’t know when they need to sell a business unless an external party, such as a mentor, points it out. However, it’s important to remain open to certain cues. For instance, when you’ve professionalized the business by hiring the right people, you may no longer need to be there to supervise daily operations. If the business’s bottom line is good and future cash flows are projectable, you can sell the business for good value.

In other situations, the business may outgrow you. It may require expertise that’s beyond your ability for it to maximize its potential. Letting go of the business allows the injection of new ideas and energy to power the next stage of growth.

Preparing the Business for Sale

No matter the reason for selling the business, you want to get the maximum compensation for the value of the business. There are several ways to determine the value of a business:

Assessing historical revenue and profits
Projecting and discounting future cash flows
Calculating the net assets of the business
Valuing the size of the business’s current market share

The various approaches are likely to yield different valuations for your business. You may need to consult an expert to help you choose the most favorable approach. For instance, capital-intensive businesses may favor the assets approach, while a business in a fast-growing industry may find a future cash flow valuation approach to be better.

Business Paperwork

Regardless of the approach, proper records of the business are paramount. Business records are important for tax purposes, and they help prospective investors and buyers assess the true value of the enterprise.

If you don’t have comprehensive business records, start proper bookkeeping practices today. You can improve your internal processes through simple-to-use accounting tools. Sending your customers invoices for their purchases helps you gain insight into your sales volumes and trends. A free online invoice generator allows you to quickly customize an invoice for your business from pre-made templates with your own photos, logo, and text.

When preparing the business for sale, ensure your legal paperwork is in order. Have your Articles of Incorporation available, and renew all your licenses. If you have ongoing contracts with vendors and customers, ensure they’re in writing for the sake of business continuity.

Preparation Helps You Get Fair Compensation

Selling your business requires preparation, and completing the process may take more than a year. Talk to the right consultants to determine a provable valuation, and get your paperwork in order to help expedite the valuation and sale process.

Visit Bay Area Business Brokers for more information on how to prepare to sell your business. 408-246-3846.

Courtney started Gig Spark to be a resource and the first step for people who are looking to join the gig economy, either to supplement their income or as a way to fulfill their dreams of becoming an entrepreneur.