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You have a great business and you’re not thinking of selling right now, but what if you need to? A health crisis, loss of a partner or reluctance of family to take over the business could all result in the need to sell your business, but could you execute an exit strategy right away?
Up to 70-80% of small business owner’s total net worth is directly tied to their company, based on research from GrowthSmart Consulting, Inc. Yet, despite this, over 60% of business owners don’t have an “exit” strategy.
With so much at stake, business owners need to include an exit strategy as a key component to their overall business plan. Being prepared will help you maintain, and likely increase, the value of your business. Actions you take now could take time to implement to have full impact.
Here are some tips for information to have ready, and actions to take, to prepare an exit strategy:
1) Financial statements (5-7 years) based on a consistent application of U.S. GAAP (Generally Accepted Accounting Principles). If you don’t already have a financial accounting system in place, it is to your advantage to do so
2) Up to date tax filings, and payroll withholding submissions if applicable
3) Complete and clear records on all contracts, including customers, vendors, loans, leases, insurance, etc. as well as any shares owned by others
4) A comprehensive narrative on your business, including products and services offered, pricing, costs, markets served, employee retention, customer satisfaction, business history, competitive analysis
5) Involve your attorney in the process so that your exit plan is aligned with your estate plan. Consult your accountant / tax advisor to plan for and mitigate any tax impacts
6) If you operate your business out of a building that you own, consider the value of the business with and without the building being included. Would leasing the building to a new owner be something that would interest you and the new business owner?
A business with favorable trends in sales, operating margin, and cash flow, as well as a “lean” balance sheet, will result in a higher value at exit. If your business needs to improve in any of these areas, this will take time.
So, if you are a business owner who does not have an exit strategy, take action now. Someday, you, and your family, will be very thankful that you did.
Robert Denten is a volunteer mentor with SCORE’s Tip of the Mitt Chapter. To request the free, confidential mentoring services which SCORE offers for small businesses, call the Petoskey Regional Chamber of Commerce at (231) 347-4150.
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