With corporate buyers hoarding record amounts of cash and interest rates at historic lows, the current market conditions are perfect for turning your business into your retirement plan. If you feel ready to sell, you want to make sure your efforts translate to the most dollars—whether that means creating wealth or just making ends meet. Today, we are going to explore how to maximize the proceeds in the sale of your business.

Start planning and preparing early

The average business sale takes six to nine months, but experts recommend starting even earlier than that—three to five years ahead of your target sale date—to fully maximize proceeds.

Keep in mind that the business principles which make a company attractive to a potential buyer will also set your business up for ongoing success. Since you never know when a buyer will make you an offer you cannot resist, adopt a mindset to be prepared, always and any time.

Pay special attention to:

• Keeping your financials clean. If your business is not large enough to support an internal accountant, outsourcing monthly accounting work is a way to stay within budget while keeping up with your financial reporting.
  
  
• Investing in your management team. Ideally, your management team should be able to run your business in your absence. Investing your time and resources into building strong leadership will ease any concerns a potential buyer may have about future revenue streams and growth potential.
  
  
• Fine-tuning your systems and processes. The cleaner your software, systems, processes, and procedures are to follow, the easier continuing business operations with minimal interruptions will be for a buyer post-close.
  
  
• Creating wealth. Be careful to avoid common pitfalls (discussed later) that can diminish or consume, rather than create, wealth from your business.

Complete your due diligence

A sophisticated buyer will include legal documentation, financial reporting, management team, operational processes, and IT systems in their due diligence. Some sellers will engage advisors to perform sell-side due diligence to identify any financial, legal, or operational areas of concern that may arise during the transaction.

A little anticipatory diligence will go a long way in allowing management to address these matters prior to going to market, saving everyone the frustration and headaches that accompany failed transactions later.

Create—rather than consume—wealth

For years, your tax advisors have likely emphasized minimizing tax liability by maximizing cash flow for your lifestyle. While this is sound advice, it can hurt when preparing to sell your business. In the years before a sale, avoid artificially lowering profits or extracting too much cash for personal use. Instead, focus on increasing profits and reinvesting cash back into the business.

With guidance from a financial advisor and a solid strategy, you can stretch the cash you do take out. Treat your business as a wealth-creating asset, not a source of consumption.

Also, document personal expenses carefully. Buyers will often add back one-time or personal expenses to EBITDA (earnings before interest, taxes, depreciation, and amortization) if properly documented. Without documentation, those add-backs won’t count.

Depending on your business's risk profile, these add-backs can significantly impact your sale price. For instance, a business with $1M in EBITDA and a 5x multiplier could see its sale price jump from $5M to $6.25M by adding back $250K in personal expenses. Keep track of these potential add-backs to ensure you're building wealth, not just spending it.

View your business as a buyer

From a buyer’s perspective, one of the main concerns is whether the business will continue to thrive without you. Any steps you can take prior to sale to maximize continued cash-flow will maximize stakeholder value, and—in turn—maximize the purchase price.

We’re here to help

Do not discount the impact the right tax, advisory and wealth management team—as well as the right succession plan—can have on getting the most out of your business. By planning with experts early and thoroughly, you can help ensure wealth in the sale of your business.