Planning To Sell In Three Or Four Years? --> Start Working On It Now

When getting ready to sell a house or a car, the first thing people do is clean it up and get rid of the clutter. It is not so different when selling a business. The process just has to begin much sooner.
Buyers look at the past three or four years of financial performance, so that is when the cleanup process should begin. Sellers need to look at what the future buyer will be looking for and organize appropriately. It is important to consider the following before deciding to sell:
Are you taking out too much compensation, travel, entertainment or other related expenses? -- This may save you money on income taxes, but buyers have a difficult time differentiating between what is required for business and what is excess. A buyer may agree to pay x-times, so an additional $100,000 of expenses could cost you hundreds of thousands of dollars in sale value. With excess expenses, your bottom line or net income is lower, which makes the profitability and the amount a buyer will pay lower.
If your business is an S corporation or LLC, consider taking out equity distributions that don't affect operating income. -- Equity distributions are taken out after profits that were already taxed. Since profits will be higher because of taking out equity distributions versus owner compensation, the business will be viewed to be more valuable. Earnings (amount of profit or after-tax net income) are only subject to income tax and not employment tax, which may also save money.
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Geometrix Hair Design
Pictured left to right: Marcia Bowron-CBB Broker,
Dee Hilton-Seller, Mandy Newslands-Buyer
Geometrix Hair Design, a popular upscale hair salon in Katy since 1985, was purchased by Mandy Newlands, a former hairstylist for the New Orleans Saints football team and a current grad student. Dee Hilton, the seller, sold the salon so she could take care of her aging parents. She will continue working as a stylist for the new owner as will the entire staff.
Marcia Bowron listed and sold the business.
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Ask The Experts
Question:
What are some of the strategic reasons why a big company might want to buy my business?
Answer:
1. To control their supply chain - In 2011, Starbucks announced it had acquired Evolution Fresh, one of their providers of juice drinks, for $30 million. Now Starbucks is no longer beholden to one of its suppliers.
2. To give their sales people something else in their briefcase -- Also in 2011, AOL announced the acquisition of The Huffington Post for $315 million, even though HuffPo had just turned its first modest profit on paper. AOL wanted to give its advertising sales people more inventory to sell and HuffPo had 26 million unique visitors a month.
3. To make their cash cow product look sexier -- Microsoft bought Skype for $8.5 billion dollars even though Skype was losing money. The good folks in Redmond must have assumed they could sell more Windows, Office and Xbox by integrating Skype into everything they already sell.
4. To enter a new geographic market -- Herman Miller paid $50 million to acquire China's POSH Office Systems in order to get a beachhead into the world's fastest growing market for office furniture.
5. To get a hold of your employees -- Facebook reportedly acquired Internet start-up Hot Potato for $10 million, largely to get hold of the talented developers working at the company.
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