Cashing out or retiring during the pandemic is a real consideration that small-business owners have to face as they worry it will be more difficult in the years to come.
The good news is that many investors are always looking for opportunities, especially during difficult times. According to a report by BizBuySell, many essential businesses have seen their revenues and values go up during the current economic climate — delivery, online education, e-commerce and others are growing in demand.
When should a small-business owner seriously consider an investor?
Each business has different needs and the business owner will have their own reasons. In popular cases, a small business can turn to an investor when a new opportunity to grow is discovered, new equipment is needed to scale, the price and conditions are just right, or simply to exit the market to move on to the next big idea.
For small-business owners considering an exit strategy, attracting an investor to help you grow or buy your business will require some preparation.
If you are considering cashing out of your business, here are four steps you should take to be ready for an interested investor.
- Write your business plan and have it reviewed. A business plan is the story of how your small business will be successful. It contains several key pieces of information, such as details about your idea and market, financial targets, and overall strategy on how the business operates. It is good business practice for a business owner to write their own business plan first and later have it reviewed by a lawyer, accountant or business consultant. Investors like to see your key performance indicators, cost drivers and projections to feel confident about the investment, so make sure to include that information as well.
- Be clear why you need it, how much you need, and what you are willing to give. Be honest about the reasons why you want to sell your business. It is not uncommon for small-business owners to burn out and lose desire to run the business. In some cases, it is better to sell it at the current market value than to continue pouring more money in to keep it afloat. Think about your financial position, your goals and what you are seeking beyond just the financial investment. Are you seeking someone with experience, energy and talent in the industry as well?
- Prepare your valuation and financial statements. The proof is in the numbers. Having good financial practices will put you in the best position to understand the value and performance of your business. Use an accounting software like QuickBooks or Wave Apps to help you create your profit and loss, cash flow, and balance statements. These online systems can also help you break down your numbers in monthly, quarterly and annual reports. These are common financial statements investors look for to decide to invest. When it is time to prepare your business valuation, hire a CPA to help you demonstrate the true value of your business. You will want to highlight where the revenue is derived from and what assets the new investor is purchasing. These valuation reports can be tricky to prepare, so it is always recommended to have an expert craft it for you.
- Prepare for the investor presentation. Once you have your business plan, updated financial records and valuation, it is time to look for an investor. An investor can be a family member, friend, a close colleague or a complete stranger. Reach out to your local economic development office for investor pitch events or apply for a business incubator. There are many business experts who are ready to support you in the sale of your business, especially with your pitch.
Preparing for a business sale requires you to do your homework. This process does not happen overnight, and, when done well, it can be a transformative experience for your business growth. Even if you are not interested in cashing out of your business, it is always a good idea to have a plan, clean financials and an understanding of your goals.
If you are interested in joining our entrepreneur group to learn more, sign up for our bi-weekly Business Energizers! We discuss strategies, goals and resources in a virtual mastermind setting. The Business Energizers are held every other Monday from 9:00 AM to 10:00 AM. You can register for free by visiting www.ccbsfoundation.org.
EDGAR RAFAEL OLIVO is a bilingual business educator, economic advisor and contributor for several media outlets. He’s a nonprofit executive who is passionate about education. He is certified in finance and data analytics and holds a business degree from Arizona State University.
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