Should You Plan On Selling Your Business In 2024?

2023 has been challenging due to concerns about the economy, the political climate and high interest rates when it comes to selling a business. There are still buyers looking for good businesses, but they have been cautious and are digging deeper during due diligence which makes an already stressful process more intense for the sellers. Many business owners ask if this is a bad time to sell; if you have a profitable business with growth potential, it is a great time to sell, due to demand for good businesses in the current market. There are more buyers than good businesses for sale and capital gains will probably keep rising, so selling now might put more money in your pocket, rather than waiting another year or two.

If you aren’t ready to sell in 2024 you should start preparing, even if you are 3-5 years out. Being prepared can make the process smoother and ensure you receive a fair price for your business. There are many businesses that don’t sell, simply because the owners never created an exit plan and most don’t realize what buyers will be looking for.

Here are a few things buyers will expect during due diligence:

• 2-5 years financial reports that are clear or at least explainable. (Many business owners do not realize how poor their books are in the eyes of a buyer until they decide to sell)
• 3- 5 ?years of tax return records (This is were we see concerns from buyers; when tax records don’t align with the income statements and balance sheets, can this be explained easily)
• Payroll records, employee retention, management in place, etc.. (Buyers like to see that the business isn’t totally dependent on the owner)
• Customer base (You should never have 1 or 2 customers that are more than 20% of your total sales, this will be a red flag for most buyers)
• 1st Impression (This is not talked about much but does your business need a fresh coat of paint, are things outdated, is equipment, vehicles, etc., in good condition. Buyers will look to see how much they will need to invest after closing, this could kill a deal)

Some other things you should understand or know:

• Get with a tax advisor and find the best ways to minimize tax liabilities.
• Be able to explain and show the buyer where and what makes your business profitable, basically the most important things the new owner will need to focus on. If you can't sell the benefits of owning your business it will be hard to sell.
• I mentioned profitable several times in this article; Is your business profitable or just making you a paycheck? Remember the buyer will have an added expense after closing which is debt for the acquisition. Does the business produce enough profit to pay this debt and still provide the buyer with a reasonable income? The lenders will be doing their own due diligence to see if the business can support this debt service.
• Are you prepared to do seller financing or at least some seller financing, sometimes the lender will demand some seller financing.
• Are you prepared to stay on after closing to train or help the seller succeed, many buyers will want 3-6 months transition with the seller, sometimes more. Remember it an average of 9 months to sell a business, add a transition and you might not be completely out of your business for a year or more.

There are many things to think about before, during and after you decide to sell your business. Most business owners have never sold a business, maybe now is the time to start preparing or maybe it is time to sell, find your answers now. Get with a Certified Business Intermediary (CBI) and learn more about the process, see if this is the time to sell.

Mike Limbers, CBI

MLimbers@Tworld.com

Transworld Business Advisors/Brighton/Howell/Novi

517-230-1281