It’s not uncommon for small business owners to be so in the thick of things with the day-to-day operations of their business that little thought is put into what will happen when they’re ready to get out of the business.

But as an owner, your time in the business will one day need to come to an end and the sooner you start planning for it, the better it will be. Ideally, the planning process should start three to five years before the intended transition. Doing so allows time to create a robust succession plan and enhance the value of your business.

Because the number one mistake small business owners make when preparing their succession plan is over valuating the business. That’s right, many business owners tend to consider their business to be worth far more than it actually is. In reality, a business is only worth what someone is willing to pay and a buyer doesn’t see the blood, sweat and tears an owner has poured in over the years; a buyer only sees the future revenue potential of a business.

The owner sees hard work; the buyer only sees the bottom line.

So how do you boost that bottom line in order to get the most out of your business? Simply put, succession planning is like staging a house for sale — it needs to look good. And you need to know who your buyer will be.

Start by talking to a professional to get proper valuation advice. From there determine the small (or large) changes needed in order to maximize your business’s value.

For example, if the buyer will likely be a competitor, over the next three to five years, your efforts need to be focused on boosting market share so that there is value in absorbing your business. However, if your potential buyer is likely to be someone who intends to continue running (and growing) the business, focus your efforts on boosting earnings and profitability.

The important thing to remember is that if the business is built around the value of a specific person (i.e. you) then you need to focus efforts on taking yourself out of the equation. No buyer will show interest if the majority of a company’s clients walk as soon as you retire. Build a strong team so that the business can operate without you.

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