Launching a business is like writing a story, with the owner as the author and the opportunity to define and shape how their business develops and grows a "choose your own adventure." This story includes how the owner will eventually transition from the business, essentially writing their own ending. Ideally, the business owner has substantial control over how and when their business fulfills its objectives and how they eventually plan to exit. But getting to choose the ending that makes your story great takes planning and preparation.
Often times highly entrepreneurial business owners approach their business with an exit strategy in mind. They view the process of building, growing and selling businesses as an ongoing strategic cycle. Their vision involves growing and selling an individual business as part of a larger ongoing process of duplicating this strategy of incubation, growth, and sale as their overall business model. However, during the provision of our service offerings, Transworld comes across business owners of all kinds and this includes those who plan and those who don't plan for their exit.
One such ownership group is the Creative Entrepreneur. This group works to create a business model that is on trend and ahead of the curve. Their ultimate goal is to create a buzzworthy business, secure, sustain and grow it and then sell and exit while still in the up cycle before an economic plateau. This option keeps the business attractive to potential buyers because it supports an attractive business valuation and there is still room for growth and profitability.
Other business owners have a much more long-term vision for their business, where they plan to secure, sustain and grow the business and keep it running through to their retirement. This option can bring on the development of a well-planned exit, but also circumstantial exits that don't allow for proper preparation. These circumstantial exits may be due to economic emergencies, unforeseen personal events, relocation or a desire for a career change.
Those who write their business exit strategy in advance, even for unplanned and circumstantial situations, are more likely to sell their business quickly at a higher valuation and within more favorable circumstances. To be able to sell your business and exit the story with results that you want, start with some preparation basics:
- Selling a Business Does Not Happen Overnight. Write in enough time to start the process, get your business in order and allow your business to be put on the market and sell. Simply deciding to sell your business does not make it so - the process takes time.
- Books and Records. While you are writing your story don't forget to keep up with your books and record keeping. Having access to 2-3 years of tax returns, profit and loss statements and balance sheets will help present and clarify your company's financial position. If substantial expenses have been run through the business, recasting the financials may be necessary to provide a more accurate picture of the businesses finances.
- Call in the Professionals. Don't be afraid to ask for help. Maybe your financial documents are not in good order. Using a CPA or EA to review and organize your records will help prepare you and your business to move on to the sale process. Maybe while writing your story, you neglected more than your financial documents, working with a broker can provide needed feedback and a plan for getting your business ready to sell.
- What are the Strengths and Deficiencies of the Business? Have you so ingrained yourself in the story of your business as the Hero that without you there is nothing left? Now is the time to boost your supporting characters and provide them with the strength to run the business on their own. A new owner will be grateful they can step into the business and not worry that the previous owner's absence will make success difficult.
- Understand your Economic Concentrations. Does your business rely heavily (upwards of 5-10%) on a specific customer? Make an effort to understand your economic reliance on individual customers, as buyers tend to be wary of this reliance as it can be a point of potential vulnerability.
- How is your Timing? The story of your business has reached great success and is headed to the top of the bestseller list. Capture this good opportunity when you have the chance and consider selling when you are experiencing a profitable uptrend cycle or approaching peak economic performance. Industries can also experience cyclical or circumstantial performance cycles. Evaluate the prevailing industry conditions to help optimize the timing of a potential sale.
- What are you Willing to do to Sell your Business? Are you really interested in giving up your hero status and selling your business or is this just a casual thought? What are you willing to do to attract a buyer? If a buyer wants you to continue in a key role for a given period of time, would you comply? Buyers like to remove points of risk. An owner who is willing to stay on to support training efforts or carry out a contract with a specific customer this will allay buyer fears and reduce risk.
If you are interested in discussing how to prepare your business for sale and "choose your own adventure" schedule a free consultation with one of our knowledgeable brokers today and they can help guide you through the process.
Roger Smolik is a Business Broker at Transworld, with substantial experience in sales, consulting, capital facilitation, operations, and executive management. Previously he worked in financial securities with several international firms in California and later owned and operated a boutique investment brokerage. Transworld provides Roger with the opportunity to continue to be engaged with the essential elements of the business that have always inspired and fascinated him - the ongoing cycle of business incubation, growth, maturation and economic payoff through an eventual sale, merger or expansion.