Why Business Owners Need An Exit Plan – getting ready for a sale.

The old adage ‘failure to plan is like planning to fail’ is particularly relevant when it comes to selling a business.

Like any tech entrepreneur, a business owner needs to have an exit strategy in mind from the very beginning. While for some an exit plan may be because they are looking to retire or to move on, others could face sudden ill health, divorce, or financial problems causing them to face tough decisions much earlier. If you have already discussed exit topics (and have structured the business appropriately to allow for those eventualities) it will be much easier to act if and when the time comes.

Prepare early

The most important point is making sure you have the best business structure in place for a sale, and the second is ensuring you run the business well.

It is better to bring in an outside adviser early (like an accountant) to give an honest overview of current operations and what can be improved, including record keeping. Do this well in advance.

To make sure a business is in a sale-worthy state, it is important to have established policies and systems in place that work efficiently — including fully transparent financial records detailing things like expenditure, cash flow and profits. You will also need to document any debts, liabilities and/or disputes. New owners will not want to inherit problems they didn’t know about when buying a business. It could even land you in hot water if you don’t attend to it before you sell.

Valuing a business

When it comes to valuing your business, it is best to engage a qualified financial adviser or an accountant to assist you. If all the paperwork and evidence of cash flow is in place, this will be much easier. Usually, the sale price is based on future earnings, so you need to demonstrate that you have a well-organised enterprise. Sitting down with someone will help you to sort out your best assets, how you will position the company, what kind of price you want, and how any sale or buy out might be executed.

Finding a buyer

Many people forget about employees when they are thinking of selling a business. With employee share schemes it may be possible to put a gradual buy-out in place earlier with those who are interested. It is certainly worth discussing if you are in a business where this may be a possibility. Wider family networks or associates may also help you to discover potential buyers. The other option is advertising and/or putting it on the open market with a broker, which could be more costly.

The bottom line

The most important point for any business owner is to remember you are building up an asset. That means it is in your interests to make sure it is performing at optimum capacity and generating a solid return. This is what will attract the best buyer and the best price. Our advisers can also assist you to work on your operational plan to get the business into the best shape before you think of selling.

Checklist of documents you need to sell a business.

  • Financial records – profit and loss statements, bank loans, forecast financials etc
  • Commercial information – ABN registration papers and insurance details
  • Operation documents – business history, supplier information, stock inventory lists, strategy, procedure and process documents, rosters, and marketing materials
  • Legal details – staff and customer contracts, any franchise agreements, leases, or health and safety guidelines
  • Forecasting documents –revenue growth and anything that shows your business would be a good investment for future buyers

For more information on business sales, business advisory and how to prepare for an exit, contact Ricardo Neves at dmca advisory.