The simple answer to this question is from day one. Most business advisors will recommend you start with an endgame in mind, whether it is 5, 10 or 30 years down the road. Even if you, as the business owner, think the plan may change, it is best to plan from the start and keep in mind that you may need to re-evaluate your plans every few years.
For discussion purposes let us use 10 years as our timeline. Here are a few questions to keep in mind. What do you anticipate the size of your company to be? What kind of sales revenue do you expect? How many employees will you take on? But the main question should be who will you sell your company to? Will it be a key employee, a manager, someone on the executive team or a family member? If so, providing sufficient training to groom them from the start, even without their knowledge of your specific intent, is a great strategy. If selling to an internal buyer is not a foreseeable option then strategizing for an external buyer is important as well. Buyers appreciate management in place, who already have the ability to run the company without the direct action of the owner. This will also raise the value of the company!
If you're already in the midst of business ownership and have yet to think about what will happen when you no longer wish to be in control of the business, it is still possible to develop the strategy in the later years. During a business acquisition, a buyer typically requires three years of a business's financial history to be available. This makes the three-year mark prior to selling, at least, a great place to start the planning process. During these three years, it is important to consider that every monthly income statement will be scrutinized as well as all other financial records and historical documents. Keeping clean books and having a transparent track record is of the utmost importance. If this is an area where you have struggled in the past this is a great time of opportunity for you to hire a bookkeeper or CPA.
The three-year mark is also the perfect time to begin establishing strength in the management or leadership of the company, aside from yourself. Many of your responsibilities will need to be given to your chosen employees to show the buyer that the company will remain stable without you in place. Essentially, the less you do in a stable and growing business the higher the value, the more you have your hands in the business the lower the value.
Lastly, a growing company means growing value, the next three years should be focused on developing positive growth so you can reap a high value of return on your business sale. If you are interested in learning more about how to prepare for the sale of your business, schedule a consultation with one of our knowledgeable brokers.
Chris Cantwell brings 20 years of small business experience to Transworld via the restaurant industry. While Chris is diverse in working with all industries, restaurants, hospitality and franchises are his areas of added expertise. He is a member of the Colorado Restaurant Association keeping him up to date on the pulse of the industry.