Owning a small business can be very fulfilling and is one way to get the most out of your time, talent, and capital. You started a business in a field you are/were interested in and focused your energy on different growth strategies. However, during the exciting growth phase you probably overlooked the need to develop a proper exit strategy, but it is not too late. There will inevitably come a time when you decide to sell your business or move out of a management role. As the time to exit approaches here are some things to think about.
Prepare, prepare, prepare.
Oftentimes, businesses that sell quickly and for the highest price have all the minute details in perfect order. Books are up-to-date, easy to interpret, and support the valuation metrics. Therefore your financial statements should be professionally prepared, typically by a CPA. In addition to your financial statements prospective buyers often want to see tax returns for at least the past three years. Buyers start their evaluation with analysis of the financial statements because the statements give a good picture of previous growth, opportunity going forward, and where problems might exist.
In addition to financials a prospective buyer will usually scrutinize management systems and processes. Yes, this does include evaluation of the management team and key employees. Warren Buffet likes to buy businesses that “are so easy to run that a fool could do it.” The current systems and team can make the transition an enjoyable experience or a nightmare. If your business plan and management systems are accessible, easy to understand, and implemented properly thought out your business it will be more attractive.
By preparing your financial documents, business plan, and management outline you have taken the first steps to setting up your business for a transition.