The perfect storm may be upon us: According to the Pew Research Center, from January 1, 2011 and for the next 19 years 10,000 people will turn 65 (79 million baby boomers which accounts for 26% of the country’s population).  Add to that an 8.2% unemployment rate, slow job creation and the general lack of security in Corporate America and you have the perfect storm.  This doesn’t account for the billions of dollars that strategic and financial buyers have sitting in their accounts due to the lack of activity for several years after the 2009 meltdown.  The result:  more businesses for sale and many qualified, motivated buyers.  The good businesses will get a premium price and sell quickly.

At VR Business Sales, Mergers & Acquisitions in Charlotte, NC, we have sold more businesses in the past 18 months for full price than we did in the previous 6 years.  Confirming that the market realizes when they see a good opportunity.  Dealing with closely held businesses (1 to 5 shareholders) you realize running the day-to-day operations is a full time job and you may not have time to think about selling your business.   Taking the time to plan an exit strategy is so important because your business often represents the majority of your net worth.  So, what did these businesses have in common, besides selling for full asking price?

1.       Clean books and records without a tremendous amount of “discretionary” expenses.  Banks lend on EBITDA plus owner W-2 salary, not how many tanks of gas, stamps, personal trips, country club membership dues, etc. you have buried in your expenses.  Yes, you may save thousands in taxes, but you may cost yourself much more in value.

2.       Solid organizational chart with competent people completing their job descriptions without the owner holding their hand all day.  Most closely held businesses have an active owner, but a new buyer has to believe they can pick up the Seller’s responsibility within 3 to 12 months.

3.       Diversified customer base.  This one is easy, if you have all your eggs in one basket, you have a risky business.  Higher risk, lower price.

4.       Consistent, stable sales and continued growth.  Most of us hit bottom in 2009 and have started growing again.  Buyers and Lenders need to see some quarter to quarter growth.  They also like to see a proven track record of profitability.  If you make all your money in one quarter, it is unlikely your business will sell for a premium.

5.       Leave something for the next guy.  Savvy buyers pay for what the Seller has accomplished and buy it for what they can do with it.  No one purchases the perfect business.  What can they bring to the table to improve it?  They want to make sure there is upside and they could

         potentially resell it in 7 to 10 years (average time a closely held business changes hands).

6.       Hire an expert or professional to help you determine your current value and help guide you through your exit strategy.  You would retain an attorney to go to court and you would have your CPA complete your tax return, so hire a professional to handle your biggest asset. The bitterness of poor quality remains long after the sweetness of the low price is forgotten.