Printer-friendly PDF version
Are You Planning for the Eventual Sale Of Your Business?
Selling your business is a once-in-a-lifetime event – and will unquestionably be one of your most important business projects ever. Because, after the sale agreement is signed, it's over. Done. You’ll walk away with whatever price you were able to negotiate.
Will that price satisfy the need that prompted you to sell (e.g., retirement)? Will that price fully repay you for all your years of effort, initiative, and worry?
Every business owner exits at some point down the road. Business exits fall into two basic forms:
- Either a voluntary exit on the owner’s terms
- Or an involuntary exit that may have adverse consequences
However far away your business exit may be, you can’t begin planning too early for a successful one.
The process of positioning and selling your business can be stressful and all consuming. It can be fraught with hurdles. The process will involve financial, legal, and perhaps even personality issues. Systematically handling these issues will provide you with maximized value for your business. Poorly handling them means you will not only miss out on selling opportunities – but also potentially have to sell your business far below its true, realizable value.
So, what business exit strategies do you need to consider? How do you prepare for this journey? Let’s look at the top 10 issues you need to address and implement, as you develop your “how to sell a business” plan.
- Clarify the objectives you want to reach from the sale of your business. You need to address the value expectation that you wish to realize. That is, who are the potential buyers for your business? Think about positioning the business for sale: What do you have to sell that is of value to a prospective buyer? Begin formulating a timeline for when you want to sell. Also strategize your selling proposition. What are you really selling?
- Assess the current value of your business and establish the target value you wish to obtain. Start with getting an assessment of the current value of your business. Then address what value you would like to achieve, as well as the timeline likely required to build the desired value. Use the valuation process to identify issues adversely impacting current value and develop strategies to reduce/eliminate their impact. Begin thinking about strategies that will help build business value.
- Implement a professional team of transition advisors. Make sure you surround yourself with a team of skilled and experienced advisors who specialize in business transitions. This team will be vital to your success; they will guide and assist you from start to finish. Get your team engaged early on. This is crucial for maximizing your end sales value and success upon transition.
- Begin the process of cleaning up the business to remove assets that won’t be part of a future sale. Get your business looking sharp and cleaned up. Streamline operations; clean up the books; remove non-business assets and expenses. Be ready to make a positive first impression to a prospective buyer. From the outset, give that buyer the confidence that your house is in order.
- Identify the unique core differentiators of your business and develop strategies to strengthen these to boost the business value. Do you have unique products, services, and/or processes that set your business apart from your competition? Do you have unique proprietary knowledge or intellectual property that may add value for a buyer? Have you considered the value of your customer base and market position?
- Start working with your advisors on developing strategies to build business value by optimizing performance and profitability. Look to enhance your processes and systems. Create formal business documentation and policies. Build value through training and mentoring both staff and management to enhance their skills. Address current relationships with your customers and suppliers – and consider securing these relationships more formally with customer/supplier contracts.
- Identify current risk factors in your business. To enhance your business value even more, develop and build strategies to reduce risk to a buyer. Address your customer dependency: Is it a risk factor or a value enhancer? Review your product and/or service diversity. Are the breadth and depth of your business model value enhancers?
- Start the process of transitioning out of the business. Begin planning to remove yourself from daily operations. Leverage your team’s skills and reduce their reliance on your being there. Develop and groom the management team to operate the business effectively without you.
- Focus attention on drivers of working capital and cash flow. When assessing value, buyers are keen to focus on the cash flow and working-capital-generation capability of the business. Look to enhance your systems and processes to maximize working capital and cash flows going forward.
- Build a positive culture in your business. You want to present a business that fosters a culture of teamwork and support. Develop a culture of continuous improvement and an ability to be adaptable to change. Ensure you engage the team to positively position your business to customers, the community and suppliers. Put simply, create a devoted fan club for your business!
Whatever your plans may be, exiting a business does not have to be a trying or negative experience. It can simply be a part of making progress to an eventual goal or a way to take advantage of new opportunities. Being prepared with a sound, well-thought-out business exit strategy means you can enjoy your business ownership, secure in the knowledge that you will be able to leave the business when you are ready – not because you have to.
If you are thinking about or currently working on your business transition plan and are in need of assistance, please contact Rick Gendemann, one of our business succession leaders. We look forward to the opportunity to connect with you to discuss your business transition planning issues and address how we may able to work with you and your family on developing and implementing your successful business transition plan.
Rick Gendemann, CPA, CA, is the Business Succession leader for Manning Elliott LLP. Rick can be reached at (604) 557-5760 or firstname.lastname@example.org.
We also invite you to subscribe to our mailing list so we can keep you up to date on all future blog posts.