Benjamin Franklin, Winston Churchill and many others have said it: “Failure to plan is planning to fail,” or some version thereof.
This is certainly true for a business owner, who someday will decide to exit the current business and retreat to a retirement of peace and enjoyment.
This is why we recommend that business owners have a plan, for the eventual sale of your business. The owners will want to have confidence they can sell their businesses at the right price to the right new proprietor.
Many experts recommend that business owners start planning an exit strategy three to five years in advance. We recommend that the thought process should begin the day you start your business. I know this can be difficult. Many business owners are attached to what they do. Sometimes they’re overwhelmed, and there doesn’t seem to be time for any long-term planning.
Example of How to Increase the Value of Your Business:
Most exit strategies benefit from preparation and planning. Consider the case of a seller who recently contacted us. This was a closely-held medical supply business. The owner is the main salesperson and his wife is the office manager. The business has been in existence for 30 years, has a loyal clientele, and is very profitable. If the owner and his wife leave, the relationships go with him. The customer service and operational efficiencies will then go with her. There isn’t much left in the business other than the name. However, if the owner and his wife begin planning for a sale years before, they could have made the business much more valuable to a potential buyer.
To increase the value, for instance, the owner/salesperson can train one or two additional salespeople and teach them his product knowledge and sales techniques. The wife, who manages the business, can hire an assistant and train that person. She can develop procedure manuals, or at least define and outline what those procedures should be. She can also introduce her associate to regular clients so there is some familiarity with others in the organization. By following the above steps, the owner and his wife have significantly increased the value and transferability of their business.
Larger businesses have much more at stake. What can be done to increase efficiency, transparency and profitability? How can costs and risks be decreased?
3 Things You Can Do Now To Plan for the Sale of Your Business:
- Build a real management team with a CEO, a COO and an HR representative. Fill in lower level positions as needed, but carefully define the roles for each of those positions. This will result in a separation of powers, better decision-making, and an easier time of filling a role if a key person suddenly leaves. Set up various business systems, such as automated accounting, Customer Relationship Management systems, even write an employee manual. Clean up the company’s books. Include accurate documentation of expenses, revenues, invoices, payroll, benefits, etc.
- Conduct an inventory of all physical assets, including equipment, computers, salable inventory, even office furniture. There are numerous good software programs available to help with this. Update this inventory on a regular basis. There are many quality software programs available to track and manage physical inventory for larger businesses. Many companies over-estimate or under-estimate the value of their inventory. When it comes time to exit the business, if you under-estimate the inventory, you are leaving money on the table; if you over-estimate you create suspicion in the buyer’s eyes and risk the trust factor.
- Make sure the company’s insurance policies are up-to-date, and that the company is insured against all major risks. You might even consider listening to insurance proposals from competing companies to find a better deal. Review all contracts and policies to make sure the company has not run afoul with all applicable city, state and federal laws. Be sure to have a competent business attorney at hand if you need one.
Business owners are so busy confronting the day-to-day challenges, it is easy to overlook the critical task of planning for the sale of your business. At some point, every owner exits their businesses, whether voluntarily or involuntarily. When that day arrives, owners want to exit on their terms, which are mainly financial independence and choosing the person or entity that will purchase and take over the business. But failure to have a solid exit plan could mean failure to have a successful exit. Start early.
Need a professional to help plan a successful exit strategy?
While the above steps can be taken now to plan for a successful exit strategy, a professional business broker can help. They can identify and help you tackle other steps based on the specific circumstances of your business.
You can also download our Selling A Business Checklist, which offers insight into how to get your business ready to sell:
If you need help putting together a strategic plan, please contact the Benjamin Ross Group at 215-357-9694 to speak with a business broker who can help you start the process.