Working with many business owners who are planning their exit strategies brings up common questions: where do we find the new owners? Are there plenty of entrepreneurs in the marketplace now? Do we sell to employees within the company?
It can take a number of years to get an acquisition that will work for you, so you need to start planning toward this several years before you are ready to exit.
Here are some tips for preparing your business for your exit:
Think from the perspective of a potential buyer: Take a look at your operations. How much of your time is required to operate your business? A new owner is often looking for a business that is compatible with his/her lifestyle. They do not want to buy something that is going to totally consume their life. You might think “well that’s the way it was when I started this business” but that doesn’t really matter to a potential owner. Look at what you are spending your time on. More than likely you are doing a lot of tasks that could be handled by someone else after a short period of training. You might think that hiring someone to do these tasks will eat into your bottom line, but a potential buyer is going to factor in that cost anyhow. So you might as well delegate those tasks out now and integrate the new position into your business systems. This will make the business much more attractive to a potential buyer and you might even find that freeing yourself up to work on owner duties will in fact bring in more business and not negatively impact your bottom line.
Clean up those financial statements! It’s time to take a hard look at your financial statements. Is the equipment you have recorded still even being used by the business? Are there old receivables that really just need to be written off? Is there a potential liability in the business that hasn’t been recognized on your financial statements yet? Are all of your lease commitments noted? Are you renting your building to your company at fair market value? How much travel and entertainment is really personal and shouldn’t even be part of the operational expenses? Are there any related party receivables or payables that need to be addressed? Identifying these items and getting clean financial statements will enable a broker to better highlight the features of your business and allows a new potential owner to see what is really the value in your business.
Document your processes: How long has it been since you have reviewed and updated your procedures? Are you still using the same software? Do you still have the same supplier for the materials required. This is a task that tends to get overlooked as changes are made to our processes. Before you start looking for a new buyer make sure you have an updated set of instructions for the key processes in your business. This will demonstrate to a new buyer that this business is ready to step into and operate without significant initial changes. This can go a long way in obtaining the price you desire.
Start the preparations years prior to your anticipated exit date: Taking these steps now while your exit is just a future idea, will put time on your side. You will have time to consider and test potential internal sales to interested employees, be more selective about a potential buyer and be more firm in your price.
Taking these steps will help you find your best option for your exit strategy. The important step is getting started. We have helped many clients prepare for their exit and transition the business to new ownership. If you are ready to start this planning process, please contact us.