Last week in our Geyer Law blog, we talked about how, while doing all we can to help our business owner clients prepare for success, we also help them be prepared for adverse developments – departure of a key employee, a disability, a financial loss, a death. We remind clients that, in fact, bad things can and do happen to even very good – and even to very skilled – business operators.
Whether you’re the owner of a small family business or a large corporation, the sooner you think about how your business might continue to function – or how it might be sold – if and when any of these “bad things” happens, – the better, we cautioned..
Selling a business, however, doesn’t need to be bad news. Unlike a forced sale, a planned business sale can be a very good thing. Owners who’ve built a successful business may be ready to reap the financial rewards. But success in selling a business depends on carefully laid plans, as Sal Acosta, author of Secrets to Buying or Selling a Business emphasizes.
For five to ten years preceding the sale of a business, three important items must be on the owner’s “to do list”:
- Maximize cash flow. In making decisions about purchasing inventory, moving to a new location, and hiring additional employees, think about the effect on cash flow. Remember – in a sale, the main driver of value (how much a buyer will pay for your business) is – cash flow.
- Extricate yourself from day-to-day operations. Suppliers and customers who are used to dealing only with the owner may balk – let them get used to dealing with and to trust those- managers and sales staff who will be staying on after the sale.
- Avoid concentration (over-reliance on a single – or very few – customers or suppliers..(Again, think about conserving value in the business for the new owner…
Here at Geyer Law, where our attorneys have been helping clients start business and plan for their succession, we know that, while there are myriad decisions to be made at the outset of the process, it’s crucial to think ahead and create a succession plan which might involve a sale to outsiders, family members, or employees.
In selling a business, we agree, preparation is the secret to success!
– by Ronnie of the Rebecca W. Geyer blog team