Generally speaking, one of the biggest (and most common) issues that you often see for small- to medium-sized business owners has less to do with overseeing the day-to-day operations of your enterprise and is more about what to do as those days draw to a close.
Business exits are extraordinarily common in the small business world, especially since those original founders would certainly like to retire one day – at least in theory. But, how do you make sure that everything you’ve already worked so hard to build remains protected, even when you’re no longer a part of it? Sadly, many times, absolutely no planning or preparation takes place because most entrepreneurs would argue that they’re too busy focusing on other, more pressing short-term matters.
The issue with this is that having no idea what a “business exit” actually looks like makes it far more difficult to command top dollar. If you already have an offer on the table, things only get worse as you now need to figure out how to best sell your business and exit it at the same time. But, thankfully, all hope is not lost. If you truly want to make sure you enjoy the most successful business exit possible, there are a few key things you’ll need to know more about.
Exiting a Business: Equal Parts Planning and Preparation
Maybe the most critical thing to understand about all of this is that there is no “one size fits all” approach to executing a successful business exit. Every organization is a little bit different from the next, and, because of that, you’re not looking for the right approach to what is about to happen so much as you’re looking for the right one for you and you alone.
Case in point: your business structure. How your business is structured and the tax ramifications of that decision will play a key role in determining how easy it will be to leave your company when the time comes. To help this process go as smoothly as possible, make sure you have all of your legal documents in order. This includes not only any agreements and patents that have amassed over the lifetime of your leadership but also information about trademarks, employee contracts, non-disclosure agreements and even company minutes.
A potential new buyer is going to want to see all of these things to understand what, specifically, they are buying. Collecting all of this information is going to take a great deal of time and effort, especially for older companies – which is why it’s a good idea to get started sooner rather than later.
The Art of Negotiation
Likewise, negotiating a successful business sale (and the associated exit) requires a unique approach to what is about to unfold. If you truly want to get the best price for your business, you need to know what that price is – which means you need to have as much insight into both your assets and your liabilities as possible.
In short, get your financials in order. If this isn’t something you can do on your own, don’t be afraid to enlist the help of a trained professional to get you there. The amount of additional money you’ll make on the sale will be more than worth the investment. Likewise, be prepared to enlist the help of legal representation and/or a business broker to guide you throughout the negotiation process. Never forget that if you have the opportunity to leverage someone else’s experience to your advantage during these times, it is absolutely in your own best interests to do so.
Moving Forward Involves Moving Beyond Yourself
Finally, never forget that the major key to a successful business exit involves making sure that your company can actually continue to survive long after you’re gone. That was always the goal, but it’s also not something that you can accomplish overnight. If your company literally cannot thrive without you and you’re planning to leave, why would anybody pay top dollar?
To relieve these concerns, begin taking steps to essentially make yourself redundant as soon as you can. Hire and empower a competent, savvy and forward-thinking management team who can do your job in your place. Take steps to scale back all of your contact with customers and let them know that after a certain point, you’re no longer going to be around. Prove to them that this doesn’t mean the relationship is over – it’s just that a new chapter is beginning. If there are important decisions to be made, bring others into the discussion – and at a certain point, leave them to others entirely.
Finally, record any and all operational procedures you’ve honed over the years that allow your business to operate so successfully in the first place. Nobody does what you do quite as you do it… but for a successful business exit, that needs to change. If there are certain tasks, procedures and best practices that were core ingredients to your success, you need to document them in a way that allows you to “leave them behind” on your way out the door. If you can prove to a buyer that your business was able to thrive beyond the fact that your name was on the door or because you were one of the first people in the office every day, you’ll do more than just attract a great price. You’ll have all the makings of a successful business exit that you can now execute on your terms instead of somebody else’s.
Bob Mason, CPA writes for CountingWorks, an accounting news and advice website. Reach his office at [email protected].
About Bob Mason, CPA
Santa Cruz based Bob Mason, CPA (Coast Financial Services) has been providing the people of Santa Cruz with years of expertise in the tax and accounting industry. He provides a broad range of accounting, bookkeeping and small business services to help your business succeed. Using their expertise in technology they have built an intuitive website with useful tools and calculators and a monthly blog which they post to on a frequent basis. Check back weekly for their next tax or accounting topic.
