All things, good and bad, eventually come to an end. Business owners choose to close and sell their businesses for a variety of reasons including: retirement, partnership disputes, boredom, illness or death, and lack of profitability. Selling your business will affect your income as well as your lifestyle. Closing and selling a business should be a planned event. Planning puts you in the leadership role.
Nearly every business uses accounting practices that will reduce the owner’s tax liabilities. Unfortunately, the same practices also reduce the value of the business. Income is the principal factor in determining the value of a business. Whenever possible, plans to sell a business should begin three to five years prior to the actual sale. This will permit the time required to make necessary changes in accounting practices that demonstrate a record of maximum profits. Make cer- tain that your financial records are ac- curate and presentable. Remember that CPA-prepared financial statements are a key tool in demonstrating the value of your business. Equally important as clean financial records are clean facilities and equipment. Be certain that inventory is properly stocked and current and that equipment is in working order.
Develop a comprehensive business presentation package for your business. This package is the business’ resume and should include: a current business plan and valuation report, business history, operational and organizational outlines, description of facilities, review of market practices, personnel overview, explanation of insurance coverage, pending legal matters, and a compendium of 3 to 5 years of financial statements.
The valuation report should contain a professionally prepared appraisal, which will eliminate the guesswork of pricing your business. If you pick a price out of the air and do not have the profits, inventory and equipment to back it up, you will sell your business for less than its market value, or it will be overpriced and not sell. A professional business broker is also a resource for valuing your business based upon your industry and location.