If your New Year’s resolution is to buy or sell a business in 2016, you will need to step up your efforts before it’s too late. At this point in the year, there are several things that should be underway. The fact of the matter is that business owners and buyers typically begin the process of preparing for a sale or a purchase long before now, special circumstances aside of course.
Textbook advice is to simultaneously develop your exit strategy with your business plan. So if your plan isn’t in place already, there are some critical year-end maneuvers to consider. Timing is great for both buyers and sellers as the cost and availability of capital are ideal right now.
To maximize your gains, use the remaining time in 2015 and early 2016 to focus on areas of the business that matter most to potential buyers. Buyers prefer a turnkey business – well oiled and well documented from processes to financials. When advising a business seller, we encourage them to invest time and resources into:
- Ensuring financial statements and reports are accurate and current
- Updating inventory, including a year-end physical inventory
- Verifying all equipment included in the sale is in functioning order, especially pieces critical to business function
- Solidifying a team of key employees who are able to smooth the transition over to the new ownership
- Strengthening vendor relationships
- Documenting all business processes
- Building and retaining a loyal customer base
Who’s in the market to buy?
Understanding the type(s) of buyers most likely to acquire your business is important in planning for the transition. Different buyers may value the components of your business differently. Some may put a premium on tangible assets, while others look for the intangibles and the financials. Either way, knowing how buyers will view your business will help you prepare to work with one or more typical buyer types:
- Your employees
- Your competitors
- High-net worth individuals
- Private equity groups (PEGs)
- Strategic acquirers
To sell your business for its highest value, an experienced business broker or advisor will market your company to the most relevant buyers. After all, not every type of buyer exists for every business on the market. For example, larger companies tend to attract private equity groups. On the other hand, high-net worth individuals and competitors often have their eyes on smaller companies.
Put yourself in the best possible position to buy a business
Purchasing a Chicago business takes as much planning and strategy as preparing one for sale does. To be in the best possible position to buy, enlist the help of a trusted business broker or advisor who can create a team of trusted professionals to support you in key areas, including accounting, legal, insurance and financing.
Your advisory team protects your interest and investment. Since this is what they do day in and day out, their experience is invaluable when you’re purchasing a business. From presenting you with potential acquisition targets that meet your criteria to helping you settle on the criteria and doing the accounting and legal legwork required for due diligence, you have the facts on which to make an informed purchase.
With changes in the lending industry over the last several years, we highly recommend buyers consult with their banking institution very early in the purchasing process. Similar to being pre-qualified for a home mortgage, knowing the amount you can borrow to purchase a business puts you in a better position with the seller. Having financing and bank support settled can give you an advantage. While other buyers are getting their financing in order, you are in a position to move forward which is attractive to a business owner.
Should 2016 be the year you buy or sell a business?
Whether you’re on the buying or selling side, taking some of these immediate steps will enable you to take advantage of the current favorable market conditions. Let our experienced M&A advisors help you navigate the marketplace and reach your goals so that you’re ready to sell at the best price or buy a wise investment in 2016.