Four Impactful Steps to Prepare For Your Business Exit Strategy
If you find yourself dreaming of the stage of life when you are no longer tied to your business’s day-to-day operations, you must create a plan for your exit strategy ahead of time. Many business owners start planning for their exit three to five years beforehand. Even if you are not ready yet to retire, there is always the possibility of unforeseen health issues or other personal matters that could impact your ability to continue running your business. You may have concerns that we are entering (or already in) a period of recession. How is that impacting your industry and, specifically, your enterprise? You may worry that this isn’t a good time to sell. It may be more difficult for a buyer to get funding with interest rates up and loans or capital more difficult to access. The reality is a recession or down economy still offers opportunities for selling a profitable business. What you can control is making your business as attractive as possible for the opportunity to sell. The earlier you start the process, the more likely you will be as successful in selling your business as you have been in growing it.
Step #1 – Review your financials.
You may be the type of owner who reviews your income statement, your balance sheet, and your net cash flow every month. Heck, maybe you are on top of the numbers every week. You know your ROI and your ROE by heart. In contrast, you might be the type of owner who works more from a place of intuition and instinct. Review your most recent financials and take a close look through the lens of a prospective buyer.
- What percentage of your business is invested in hard assets versus intangibles?
- Do you have depreciated equipment on your books that is no longer in use or of value to your company?
- Do you consistently maintain a strong cash position?
- Do you have a high amount in loans or other liabilities?
- Are these loans from established institutions versus personal or closely held loans?
By reviewing your financials and doing some basic housekeeping, you may show a stronger financial picture to a potential buyer without bringing in another dollar.
Step #2 – Evaluate your revenue stream.
Your potential buyer wants to feel confident revenues will still come flowing in when you drop off the keys.
- Do you have a few clients who consistently bring in revenue?
- Do you have a lot of clients, but they are still consistent over time?
- Or are you constantly having to find new buyers for your product or service.
- Do your customers work with YOU? Or do they work with your business?
Whenever possible, you want revenues to be consistent, from diversified sources, and not contingent on you personally.
Step #3 – Take a step back.
Remember that most buyers want to purchase the company, but not the owner (at least long-term).
Well, for some of you reading this, having less of a central role may be a welcome idea. For others, thinking of not being part of everyday sales and operations may be more difficult. If your company runs very lean, you may not have a lot of extra support staff to rely on if you were to step back. Can you afford to add staff so that your company is able to run better without you? These are all important considerations, and every business is unique.
However, you want to start allowing the business to operate without your ongoing presence. Think of yourself as more of a mentor than a boss. Empower your employees to make decisions on their own and reward those who work hard, manage time efficiently and bring value to the business’s bottom line.
When a potential new owner is evaluating your business, they will not only be thinking of the customers and revenue they are likely to retain, but also your organizational chart, how effective your processes are and both the quality of your employees as well as whether they are likely to stay after your exit.
Step #4 – Envision your buyer.
Have you thought about what type of buyer you would like to attract?
There are many possibilities out there including selling to a family member already working in the business, an employee or even a competitor. It is increasingly common for private equity investors to acquire closely held businesses within their industry of expertise. If you envision a buyer from the inside, you may want to start having that person be more involved with the management decisions and day to day oversight for the company.
Regardless of whether you are looking in-house or trying to attract an outside party, you want to start determining how your company may be valued and the best ways to increase that value in preparation for sale.
In conclusion, selling your business requires the same level of pro-active, forward thinking that you used to build it. By taking a few key steps now, you position yourself for a faster and higher priced sale in the long run.
The Exit Strategies Team at Hutchinson Family Offices is experienced in helping successful CEOs, Entrepreneurs and Founders transition out of their day-to-day business operations and into the next stage of life.
Please send us an email to YourTeam@HutchinsonFamilyOffices.com to schedule a confidential discussion and complimentary review of your business financials to see if you are on track for your own business exit strategy.
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