Exit strategy for your business: Preparing your business for selling

• Separate personal and business finances to present clean financials and maximise business valuation when selling.
• Understand whether you are a Teeter-Totter, Panicker, or Defeated Seller to avoid emotional decisions that reduce sale value.
• Begin exit planning two to four years early to prepare operations, financials, and valuation for a successful business sale.

One of the most important aspects when you have your own business is besides running the day to day activities of the business (planning/organizing/coordination/leading/controlling), to decide about the possibility of selling your business in the future.

Although business owners contemplate about their children/staff/family following their in their footsteps, it may not happen due to external factors.

Having in the broking industry for years, I find this is the one aspect that sellers do not take into consideration, and having the freedom of using funds of the business for personal expenses, this causes a problem when trying to sell the business.

Buyers (together with their accountants/advisors), in general only have historical financials to relate on, and if all expenses are not reflected here, especially where there are cash payments received used for personal expenses, the buyers will usually offer less for the business, leaving the seller in a difficult situation to prove the real NP (EBITDA) of the business.

There are different sellers i.e. The Teeter-Totter, The Panicker, and The Defeated Seller. Let’s take a closer look at each of these archetypes.

The Teeter-Totter

Of the three types, The Teeter-Totter is the most common. This seller is contemplating the idea of selling but is uncertain about whether it’s the right time. While they may still have passion and enthusiasm for their business, they are also aware that the day of sale could be approaching.

A Teeter-Totter seller often grapples with a mix of emotions. They may wonder if they can secure the best possible price for their business, or if they’re simply not ready to let go.

This indecision can make it challenging for both the seller and any advisors working with them, as the decision to sell may fluctuate over time. Sometimes this seller goes through the process, only to withdraw it as soon as buyers are ready to make an offer.

The Panicker vs. The Defeated Seller

Next, we have The Panicker and The Defeated Seller, two sellers who, though similar, differ in their emotional approach and the reasons behind their desire to exit quickly.

• The Panicker is in a rush to sell and often feels the pressure to exit immediately. However, this seller is usually unprepared for the process, lacking the necessary groundwork to maximize the value of their business. Their urgency is typically driven by anxiety or fear, rather than a clear strategy.
  

• The Defeated Seller, like the Panicker, is also unprepared and eager to sell, but their motivation stems from a personal or professional crisis. Whether facing financial struggles, burnout, or a significant life event, the Defeated Seller wants to exit quickly, but without the proper planning in place, they risk leaving money on the table.
  

Ideally, it takes two to four years to properly prepare a business for sale in order to achieve the maximum value. However, The Teeter-Totters, The Panickers, and The Defeated Sellers often complicate this timeline.

Their emotional state and urgent needs can present significant challenges for those helping them navigate the exit process.

Understanding sellers motivations & proposed selling price

Going hand in hand with above, is the obvious question of a rational, well formulated selling price that can be justified to a proposed buyer. More on this in our next article.

FOR MORE INFORMATION

Email ian@burgerbusinessbrokers.com

Dr Ian v Ravesteyn is a director of Burger Business Brokers

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