Small business owners rarely consider their strategy for an eventual exit or sale. It’s an important part of the small business lifecycle to consider, said Blake Hutchison, CEO of Flippa, an online marketplace for buying and selling SMBs.
According to Hutchison, the two main challenges for a business owner selling a business are: how to price the business and how to make a presentable financial data for prospective buyers.
Potential buyers will ask for a lot of information before the purchase of a small business. For example, a buyer of an online business may want to see stats on registered users and active users, how many users make actual purchases, the historical growth trajectory of the business and the profit and loss (P&L) statement.
None of this information can be easily collected or presented to a buyer when small businesses are running on spreadsheets. Buyers will demand more concrete evidence that a small business is profitable.
Cloud Accounting, Data Sharing
The rise of cloud accounting has been a game-changer for SMBs, Hutchison said. It can provide a quick snapshot of a company’s financial status making it a valuable tool in the ultimate exit of a small business.
Cloud accounting platforms like QuickBooks Online or Xero can integrate directly into back-office platforms to extract key financial information while companies like Flippa can connect to those platforms to extract the P&L and verification of revenue data that prospective buyers need.
The burden of paperwork and documentation required when selling a business can be reduced with the continued adoption of cloud accounting, and the digitization of the business.
Increase in Small Business Exits
As baby boomer entrepreneurs retire, they’re often looking toward millennials to run their businesses: 2017 was a record year for small business sales, according to BizBuySell data, with analysts predicting a continued increase
Hutchison said that, over the next 10 to 20 years, the U.S. market will see an increase in small business exits, totaling trillions of dollars’ worth of assets, even amid talk of an economic recession ahead.
“Regardless of the state of the economy, all businesses come and go, and small businesses will always look to find a path to exit at some point,” said Hutchison.