Devising an Exit Strategy for Selling a Business
June 23, 2024 by Nubia
When starting a business, many business owners are so focused on daily operations that the thought of selling it is usually the furthest thing from their mind. However, an exit strategy is a crucial element every business owner needs to consider if they want to exit the business on terms favorable to them. If a business owner has a plan to exit the business when it achieves certain performance goals, they will have the best chances of receiving the highest price for their business. Without a plan, many business owners are left to sell their business at a less-than-optimal time, reducing the profit they might receive.
The 6 P’s: Prior Planning and Preparation Prevents Poor Performance
An effective exit strategy takes planning, knowledge, and preparation.
Get Your Financials in Order
Providing clean, understandable financial statements such as Profit and Loss Statements, Balance Sheets, and Tax Returns will add value to your business and give you better chances of closing the sale. Put yourself in the buyer’s position: would you be willing to pay top dollar for a business that provides a clear picture of its income and finances? Accurate and clear financials will give your buyer more confidence to move forward with the sale. Some of the most important people to speak to regarding your exit strategy include your business broker, attorney, CPA, and financial advisor.
Operations Manual
Well-documented systems and procedures provide evidence to a buyer of a well-run company. Your operations manual is crucial to enable the buyer to take over the running of your business in the shortest amount of time possible and give them the greatest chances of success. Consequently, your operations manual adds great value and desirability to your business. Additionally, a good operations manual helps you with hiring and training new employees and creating a continuation plan in the event of a major illness or death of a key employee.
Extract Yourself from the Business
ActionCoach defines a business as a profitable commercial enterprise that runs without you. This is the goal for every business owner. If your presence is necessary for the day-to-day operations of your business, it makes it much harder to sell and, more importantly, reduces the value in the eyes of the buyer. As an added benefit, having a great team and management structure in place will make your time at the helm more enjoyable and your quality of life will be greatly enhanced.
Educate Yourself on What Factors Are Important in the Sale of a Business
Knowing what makes your business more valuable enables you to work on creating more value for your business. Talk to your business broker about how a business is valued. What aspects of a business are most important to a buyer: assets, cash flow, sales, customer list, patents, trademarks, your competitive advantage? By working on the areas that will make your business more attractive to a buyer, you will make your business much more desirable and give you the best chance of selling your business, in the shortest time possible, for the highest possible price.
More Benefits…
Preparing your business for sale, even if you do not intend to sell it, will actually improve the performance of your business and make it more profitable and enjoyable while you are the owner.
Take Action
Are you thinking about selling your business? Don’t delay. Take action and speak to a business broker about selling your business and the steps you can start taking now to sell your business effectively.