Planning Your Exit Strategy?

Written by Stephen Bullard, Marine Consultant and Sales Director at PierVantage

You have worked hard to build your business.  You are looking forward to moving onto the next chapter of your life.  You don’t plan on turning your business over to a son or daughter.  You are beginning to think about an exit strategy.   What do you need to do to prepare your business for a sale and ensure you get the highest asking price possible.

In this monthly blog post, I outline 10 steps to begin planning:

  1. Make Yourself Redundant: A buyer should be buying your business, not you. In the sales/negotiation process, you need to establish that the business can run effectively without you. Prospective buyers or investors will want to see a strong management team that knows how to run the business independent of their fearless leader.  This shows that the business will continue to be successful long after you step away.  The sooner you make yourself redundant, the value of your business begins to increase.  A great way to simulate your preparedness is to take an extended vacation, at least 4 weeks if not more.  Stepping away for an extended period of time will show the holes in your bucket you need to plug with personnel or process.
  1. Start Planning 2-3 Years in Advance: In my experience, smart business owners who begin planning their exit do so a few years in advance of the transaction. Business owners who “rush” the process leave money on the table. You need to start thinking about ways to maximize profitability long before deciding to sell your business. Ideally you want to have record earnings year over year for at least 2-3 years prior to listing. Focus on achieving operational efficiencies, cost reductions and other value enhancers so they are easily demonstrated to a potential buyer. 
  1. Do Your House Keeping and Improve Efficiencies: You don’t need to wait for the sales process to start to clean up the balance sheet and improve cost efficiencies. Look for opportunities to remove non-business assets such as that boat or condo in the mountains.  Focus on spending and expense control initiatives to see if you can streamline your operation. 
  1. Have Strong Financial Controls & Processes: Having a good CFO/controller of finance in place is a good start to executing strong financial controls. Take time to really understand your business operations and look at profitability from an objective standpoint. Reliable financial statements and accurate, timely reporting are mandatory features that will influence a buyer’s decision. Presenting your business with strong cash flow month over month, well defined and documented procedures, and lower capital expenditure requirements will give you the upper hand in the negotiation process.   
  1. Express Your Vision: Buyers understand a well-run business from an EBITDA and factoring perspective, but they don’t know what makes your business unique unless you tell them.  Take the time to clearly express your story to buyers and help them understand the vision and goals you’ve set for the business. Describing the company’s mission and philosophies helps potential buyers understand what the future of your business might look like. 
  1. Show a Realistic and Supportable Forecast: Take the time to work with your CPA, CFO/Controller to put together a comprehensive financial forecast, showcasing the long-term viability of your business and the potential return on investment they could realize.  Providing potential buyers with forecasts that are realistic, believable and achievable can show the true value of your business. 
  1. Separate Family from the Business: When it’s time to sell your business, you need to take the “family” out of the family business. Many small business owners have spouses, kids, nephews, nieces, etc. working for them. These family members have health insurance through the business, cell phones, cars, trucks, and more. In preparation for a sale, work hard to clean out family assets and unnecessary expenses. 
  1. Working Capital: Working capital is often an overlooked source of business value and managing that resource takes time and effort. I find that most companies simplify their management of working capital through a line of credit. Working capital is the lifeblood of a business, and buyers expect to see a healthy current ratio. Many businesses have challenges with properly managing the cash flow and most have room for significant improvement. 
  1. Seek Professional Advice:  Get advice from professionals that understand business valuation in the marine industry, in your part of the world, and with your specific expertise.  I have seen business owners sell for much less than they could and should have because they did not bring the right team of people in to put the right value on their business before beginning to shop it.  Consider a team of accounting, tax, legal and transaction experts.   
  1. Sell Your Business the Way You Would Sell Your Home: Selling a business and selling a house are similar in a lot of ways and most people wouldn’t ever let people into their home without making some cosmetic changes and cleaning up before putting it on the market. The same is true for your business. Now’s the time to get your “house” in order.

You’ll want to run your business for the next few years with strong financial results and well documented business processes.  Prepare an organizational chart and outline key responsibilities for each role in the company.  Include key performance indicators (KPI’s) that clearly establish what is expected of each team member, department, and division. Remember, during your preparation to successfully sell your business, tidy up the main focal points and top it off with a fresh coat of paint and you will not only have an aesthetically pleasing appearance for potential buyers, your employees will enjoy it as well!

If you liked this article, you might also enjoy reading an article I wrote about Cash Flow…Six Steps To A Healthy Cash Flow