You have a successful business and are not currently considering selling, but what if you need to? A health problem, the death of a partner, or the refusal of family members to take over the firm might all necessitate the sale of your business, but could you immediately implement an exit strategy?
According to data from GrowthSmart Consulting, Inc., between 70 and 80 percent of small business owners’ overall net worth is directly related to their firm. Despite this, nearly sixty percent of business owners lack an “exit” strategy.
Due to the high stakes, business owners must incorporate an exit strategy as a crucial component of their entire business plan. Being prepared can assist you in maintaining and maybe increasing the value of your company. It may take time for the actions you take today to have their full effect.
Here are some suggestions for information to gather and steps to take in preparation for an exit strategy:
1) Financial statements (5-7 years) prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles). It is advantageous to implement a financial accounting system if you do not currently have one.
2) Current tax filings and, if necessary, payroll withholding submissions
3) Maintain accurate and complete records of all contracts, including those with customers, suppliers, loans, leases, insurance, etc., as well as any shares held by third parties.
4) A detailed description of your company, including its goods and services, prices, costs, markets served, staff retention, customer satisfaction, business history, and competition analysis.
5) Engage your attorney in the process so that your departure strategy and estate plan are compatible. Contact your accountant/tax expert in order to prepare for and minimize any tax consequences.
6) If your business operates out of a facility that you own, examine the business’s value with and without the building included. Leasing the facility to a new owner can be of interest to both you and the new company owner.
Exit value will be greater for a company with good trends in revenue, operating profit, and cash flow, as well as a “lean” balance sheet. It will take time for your firm to improve in any of these areas.
Take immediate action if you are a business owner without an exit strategy. You and your family will be extremely grateful that you did it someday.
Robert Denten is a mentor with the Tip of the Mitt Chapter of SCORE. Call the Petoskey Area Chamber of Commerce at (231) 347-4150 to obtain the free, confidential mentoring services that SCORE provides for small businesses.
