Having an Exit Strategy

As a business owner you understand how major decisions require a strategy. An exit strategy is something which should be planned and the earlier the better. This will allow you to make strategic decisions and consider the many factors which go into selling your business. This will not only allow you to have a high valuation of your business, but it will also give you peace of mind of making the right decision. 

DELEGATE AND TRAIN KEY EMPLOYEES -

Having a strategy on how the business will operate once you are not there is key for prospective buyers, as they will want to see a strong management team that knows how to run the business independent of their leader. The business needs to continue to be successful long after you step away.  The sooner you make yourself redundant, the sooner the value of your business begin to increase.

PLAN EARLY -

Business owners who plan early for their exit can benefit from not leaving cash on the table, this allows to have a defined objective of what is needed to have a successful exit strategy.  Ideally there should be a clean record of earnings for the last two to three years. Having a forecast for the next couple of years (up to the year of sale) will help achieve operational efficiencies, cost reductions and other value enhancers so they are easily demonstrated to a potential buyer.

FOCUS ON FINANCIAL CONTROLS & PROCESSES -

Have a financial expert, such as a CFO look at your financial controls and processes. In addition, have well defined documentation of processes.  Reliable financial statements are required as it will influence a buyer’s decision. Presenting your business with strong cash flow month over month, and lower capital expenditure requirements will give you the upper hand in the negotiation process.

THE IMPORTANCE OF RESTATING FINANCIALS-  

Businesses often keep their reported profits and tax obligations as low as possible. Having internal reporting and restating financials helps identify the real earnings history and future profit potential of your business.  It is recommended to adjust the financial statements for the preceding three years.

HAVE A PRO FORMA -

The sale price of your  business depends on the quality and reasonableness of the profit projections you can demonstrate for future growth opportunities. The income statement, balance sheet, cash flow and working capital requirements projected for each year over a five-year planning period. This is key to calculate the value of the business.

MANAGE WORKING CAPITAL -

Buyers will expect to receive working capital at normal levels. Managing working capital requires both effort and time, but it can free up trapped cash and can lower the total level of working capital buyers expect to be delivered.

SEEK PROFESSIONAL ADVICE -

Ensure that you have the right team of professionals helping you with accounting, finance, tax, and legal. Each will have their role in the sales process and can provide you with different perspectives and expertise in their respective areas.