In different phases of life, whether in a transitional phase or nearing retirement, it is important for business owners to keep their options open and be prepared, should their circumstances change. Preparing your business to sell can be an arduous task, especially when left to the last minute. Having your business prepared to sell, even if you’re not planning to sell immediately, will help you get a return on the money and effort you have put into the business. You want to be sure you move through the process carefully and with your main goals in mind.
An exit strategy is a written plan outlining the transfer of ownership of a company from one owner to another. Creating an exit strategy before it becomes necessary is vital for ensuring a well-planned, orderly transition. Without this preemptive action, you could be leaving your, and your family’s, future to chance. Research shows that 70% of business owners do not have an exit strategy. It is a misconception that having an exit strategy means you need to sell your business now. Starting early and laying the groundwork for a successful exit gives business owners the best chance at accomplishing their personal goals, as well as their business and financial goals. Having an exit strategy means defining what you are trying to achieve for your business, for yourself, and for your family. If it comes to the point where you are being forced to sell your business and you are underprepared, it could sell for less than it should.
The exit-planning process starts with an evaluation of the value of your business. There are several factors that need to be measured including your current assets/liabilities, potential for future earnings, company structure/leadership, industry, competitors, selling point and other variables.
Ideally, your business has great financial records, is positioned for and has a plan for growth and is staffed appropriately; meaning that you could leave your business for 30 days or more and have confidence that the business would run smoothly in your absence, if not grow. You should have plans in place for replacing employees if they leave and that you are not overly reliant on a single customer or supplier. Ideally, cash flow is excellent and you have a well-positioned product or services that helps you stand out from the crowd. This kind of business is not only ready to be sold when the time is right, but it is a pleasure to own. A business that is a pleasure to own and has a good operational foundation is always an easier business to sell.
When prospective buyers look at your business, they want to be able to easily envision it operating smoothly, without you, as the current owner, being involved. Because a good portion of business owners are so integral to the functioning of their businesses, it can be difficult for them to figure out how to decouple themselves from operations. In some cases, this process can take years.
Now is a good time to consider your ideal outcome for your business and start laying the groundwork for when the time comes to sell. Give some thought as to who at your organization could be a second in command and start the process of transitioning operations. When a buyer sees that a competent and knowledgeable employee will be staying on to assist them, it can go a long way in allaying any concerns.
As with any life transition, being prepared, educated and intentional is the best way to work towards the best possible outcome. While drafting an exit strategy can be daunting, and often feel premature, it is an exercise that gives insight and definition into how best to protect and prolong the legacy of your business.
Kathryn Guthrie is an owner and broker of the Liberty Group of Nevada and a seasoned entrepreneur with over 16 years of business. Her passion lies in supporting small business owners to successfully transition their businesses to the next generation of ownership. Guthrie is a Certified Exit Planning Advisor (CEPA) through the Exit Planning Institute and a Value Builder Advisor, which makes her well-equipped to provide comprehensive guidance and support throughout the transaction process.