Everybody needs 18 months in order to sell their business. You need 18 months to prepare your business even if you think it's perfect. My name is Dave Lorenzo.

This is the Inside BS Show. We are here every day to help you grow your business, to give you the insider business secrets, to take you inside business strategy, and to give you more options when you're ready to exit. If you're struggling with business growth, you need to listen to today's show.

If you're thinking about selling your business anytime in the future, you need to listen to today's show. 18 months is the ideal timeframe to get ready to sell a business if your business is in reasonably good shape. If your business is a disaster, you may need more than that.

You may need three years. And if you want to maximize your tax incentives, you might need as long as five years depending on how your business is structured. Let me break this down for you.

The reason for a minimum of 18 months, even for the perfect business, is to look at three specific things. We want to, number one, examine your financial statements and your tax returns. Most buyers are gonna wanna look at the last three years of tax returns.

A lender's probably gonna wanna look at the last seven to 10 years of tax returns. So we have to make sure that we're intimately familiar with your history over the last seven to 10 years, the growth trajectory or the lack of growth trajectory. And we need to understand everything that went into those tax returns to make sure that we can tell a good story.

I mean, we wanna tell the real story, but we wanna tell it in a way that makes you and your business look as favorably as possible to the potential buyer or to a potential lender who is going to lend against the business for the sale of a business. So financial statements are important. Tax returns are important.

And 18 months is a long enough period for us to transition some of the potential lifestyle spending that was going on in the business out. So if you have household expenses that you're paying through your business, this is not uncommon. We need to get that out of there.

If you have extra people from your family who are getting paid through the business and they're not actually working in the business, we need to get them out of there. We want the financials to look as clean as possible when you sit down with the buyer. What happened in the past is not as important as what is going on today in the present.

And if we fix the financial statements in the first six months that we're working together, and then you have a great year of financial history afterwards, you can tell a story that, yeah, my financials were a mess two years ago, but I took six months and fixed them. And now for the last year, my financials have been beautiful. Everybody accepts that.

Everybody thinks that that's a good solution. The second reason to take 18 months from a valuation standpoint is to resolve any ongoing or legal issues or any compliance issues. If you're in a highly regulated industry and you've been a little lax on your compliance, we gotta use the 18 months to get back into good standing with any regulatory agencies.

Or if you have a lien on the business from a vendor or from someone who you borrowed from, we gotta resolve those liens. We gotta get them off of there. The final thing we wanna do from a valuation standpoint is maximize your recurring revenue.

Many businesses who come to us, they don't have recurring revenue streams currently, and we have to install them. So if it takes me six months to install a recurring revenue stream in your business, then you need a year of history to show that the recurring revenue is growing, it's building, and it really is the foundation of the business. So that's why the 18-month timeframe is valuable from maximizing your valuation standpoint.

Next, let's look at operational weak spots. So if you're overly dependent on a key person operationally, we need to fix that. If you have customer concentration issues, if 20% or more of your business is coming from one person, one company, one industry, or one geographic area, we need to fix that.

If you don't have systems and processes and the business can't run without you as the owner in place, we gotta fix that so the business can run without you. So those operational weak spots need to be addressed. And then the third thing that we look at over the course of 18 months is positioning you strategically for the right buyer.

So these days, private equity is all the rage, and those are investors. And we need to treat the business like an investment that can run without the presence of an owner and have a manager in place or a CEO in place to run the business, and that's a fact. We also wanna look at where your business fits in the strategic landscape.

So if someone wants to enter the market, if a competitor might wanna enter your market, then you could be a good fit for that competitor, whether that competitor is in the geographic market but they're not in your industry niche, or whether the competitor is in your industry niche and not in the geographic market yet. We need to position you as the dominant player in either one of those areas so you are the most attractive option for the people who are strategic buyers. You may also be a great vertical integration partner for a strategic buyer.

We can position you that way too. But 18 months gives us two or three months to assess the overall landscape and make a decision, and then it gives us a significant period of more than a year to position you as a dominant force that is attractive for a strategic buyer. These three broad categories, maximizing valuation and the things that go into doing that, operational sure-footedness or operational significance, let's say, is the second area and the things that go into that, and then positioning you strategically in the market is the third thing.

That's what we do over the course of 18 months. Now, if you're not thinking of selling in the next three to five years, we can help you from a growth and systems perspective in order for you to always be ready to maximize your exit options, whether it's way off into the future or in the short term. The final point I wanna make on this is taxes.

I am not a CPA. I am not a tax expert, and I do not give tax advice. But there are some recent updates, recent changes in the law that make it highly beneficial to look at the structure of your business and make sure you're structured appropriately for a three to five-year period so that you, as the seller, can save huge money on capital gains taxes.

If this is something that is of interest to you and you reach out to us, we will connect you with a trusted partner who's a CPA firm that works exclusively on these types of matters. So think about your business in a five-year time horizon. If you want to be able to shelter $50, $75 million in capital gains taxes, you need to think about how you're going to sell the business at least three to five years in advance.

We should get that call. You should contact us. The initial consultation is going to be free.

I'm happy to talk to you about this and explain what I mean and do an assessment of your business so that we can see how you should proceed, whether you're thinking of selling in five years, 18 months, 10 years, or you just want to maximize your options. My name is Dave Lorenzo. I'm the Godfather of Growth.

I'm here every day with a new business strategy tip for you. We'll see you back here again tomorrow.