Planning a Long-Term Exit Strategy
Smart business owners plan ahead. Succession planning or an exit strategy should be a part of every business owner’s portfolio. Whether you are thinking of selling your business during the next year or ten years from now, planning is crucial. Here are things to consider when planning to sell:
- Remove yourself from the business. Are customers here because of you or because of the business? Begin taking a lower profile while increasing the profile of your product or services; develop a strong management team.
- Reduce your personal perks. Ensure that ALL personal perks flow through verifiable and specific expense lines; this will add to your cash flow at selling time.
- Increase your sales yearly. Rising sales, even by a small percentage, increase the intrinsic value of your business.
- Develop your brand. What sets your firm apart from your competitors? What does your firm do best? When your clients think of your firm, what do you want them to remember?
- Update your business plan regularly. This will give you stronger direction as well as
providingan incoming buyer a foundation upon which to
- If possible, keep your accounts receivable at 30 days. If AR is to transfer with the sale, buyers often discount 60 days or older.
- Sell all unnecessary assets. Selling a little-used piece of equipment often brings a greater return than including it at the time of the final sale.
- Reduce inventory. By lowering your inventory to the lowest level at which you can comfortably operate, you minimize the potential for out-dated, lower value inventory at
- Employee Review. Employees are your most important resource.
- Recognize and reward valuable employees, eliminate unproductive employees. If family members are not staying after the sale, try to replace them with other employees (particularly if they are key to your operation)…if the business cannot run without them, the business is less saleable. A strong in-place management team at the time of sale is extremely valuable.
- Write all
procedures. Have employee job descriptions and written operations procedures for all segments of the business. Buyers value well organizedoperations; this organization will also ease the transition for both employees and the new management. As owner, develop a simple descriptive manual of what you do within the company—write down the information “that is in your head” so corporate knowledge can be more easily transferred.
- Try not to allow your largest customer to represent more than 30% of your business. In some businesses this is inevitable. While this can be
economically sound from an owner’s view, a new buyer can be skittish when seeing how your company relies upon the continuing success of one customer.
- Limit liabilities. Are your long-term notes assumable?
- Review lease. What options exist for lease transfer? For ending, extending your lease?
- Reduce unnecessary large purchases. Weigh the pay-back on your investment before a large purchase…could the item be leased?
- Update your website. A current and attractive website is a valuable asset when describing your company to a potential buyer.