Developing an Exit Strategy for Your Business

Developing an exit strategy for your business As a business owner, have you considered what your exit strategy would be the day you wish to sell your business? If you haven't, don't worry... you'll be joining the 80% of other business owners who haven't either. However, it's important that you do begin developing an exit strategy for your business some time before you actually put it up for sale. Using a "critical path" thinking model, along with a long-term business plan, is a helpful route you can take. It is also important to look at your company the way an outsider (such as a buyer) would, ensuring that it is prepared for sale when the transition occurs.  

Consulting with Professionals Who Would Be Involved in the Sale is a Good Start

It'd be good to reach out to different experts and advisors who you've worked with, have experience in your industry, and who will be involved in the sale of your business in order to begin developing the exit strategy. This group should include (but not necessarily be limited to) a:
  • Financial advisor
  • Business attorney
  • Certified public accountant
  • Business intermediary
Begin discussing key aspect in order to have a plan for when you are ready to sell.  

Financial and Tax Considerations to Keep in Mind When Planning the Exit Strategy

With the assistance of your team of professional consultants, you should begin to figure out the most advantageous way to prepare your business for sale - to cover your bases, maximize profits, and keep the opportunity as marketable as possible. For instance, there may be value enhancements, business opportunities, improved operations, etc. that if implemented, would effectively increase the value of your business. You should think ahead and eliminate any obstacles that may come up that would create concerns during due diligence, and could impede the sale of the business or lower its value. You may consider restructuring to save taxes, and should think about how you will structure the sale in general (asset vs stock sale).  

Getting a Valuation of Your Business is Imperative

Having a professional valuation of your company is a key part of any exit strategy. An in-depth valuation should include an assessment of your business that identifies opportunities as well as impediments to the value of the company, and provides a guideline to improving value. An annual codicil (addition or supplement) to the valuation will provide insights into how the business is improving in value.  

Decide Who You'd Like To Be The Next Owner

A big decision in your exit strategy is who you'll be transferring ownership of the business to. Will a family member take over, or would you sell it to third party or perhaps someone in the business? Selling to private equity firms, if a large enough opportunity, or to competitors (who may be willing to pay a premium) are other options.  

Keeping Financials in Order Will Make the Entire Process Easier

Keeping accurate financials and updating them on a regular basis is critical to a smooth sale and transition. Prospective buyers and their accountants will examine financials thoroughly during due diligence, making sure your business's performance checks out, and keeping everything up-to-date and in order will help move past this part of the process smoothly.  

Practical Considerations When it Comes to Transfer of Ownership

As a business owner you're more than likely included in several aspects of the business's operation, including internal operations, marketing efforts, sales. To ensure a smooth transition of the business, you should stay on for some time to train the new owner, and ensure steps are taken so that business relationships (customers, suppliers, etc.) are maintained as well. There may be other considerations when developing your exit strategy. For instance, you may retain ownership of the business's facilities and receive rent for those facilities from the new owner, if they have no interest in purchasing real estate as part of the transaction. These are the types of decisions that would be good to discuss with your trusted team of professionals.  

Working on Your Own Exit Strategy? Capital Business Solutions can Help

Capital Business Solutions is a full service business brokerage firm specializing in connecting sellers of businesses with qualified, capable buyers. We have extensive experience working with business owners on the preparation and positioning of their business for sale, and would be happy to discuss an exit strategy of your own. We can be reached here, and look forward to hearing from you!