When is it time to consider an exit plan when selling a business ?
If you are thinking about selling a business, there are a few things to consider, in an exit plan to maximise your return.
An Exit Plan
A Transition Period
Buyers almost always consider the transition; how can I transition the business and the owner’s exit. Buyers will often ask for a transition period, when buying a business. Generally, the more expensive the business the longer period they ask for. Once buyers get into the business, in general quite quickly. They consider they don’t need the previous owners input on a day to day basis and consider phone or ad-hock support.
Working in the Business Rather than Working on the Business
If you are working in the business rather than working on the business this can be tricky. To highlight this, compare the hospitality industry. This is a real problem in the hospitality industry because often the owner is also the chief. Which is probably why there can be some real bargains with quick returns. But we will concentrate on professional small businesses, with turnovers of less than 30 million.
How to Replace Your Efforts
To insure an easy transition, consider how you can be replaced. Make a list of the tasks you perform. Then think who could do the tasks and start training someone else to do the tasks. When you get down to the management tasks, consider a second in charge. This can be handy when you are away, think about taking a break for a few weeks and see how they go. This can always be a good story for a prospective buyer, prospective buyer’s always love a good story. Generally, the better the comfort level of the buyer in their investment the more willing they are to pay top dollar.
Buyers love good documentation, consider it a safely blanket for the buyer.
Document the Tasks
Documented tasks with who generally does the tasks is a good start. Who your customers are and who the key contacts are is important, as to what they buy. It should detail the customers that bring in the most revenue, and not spend the most. Spend and revenue are different, this is a business and it’s all about revenue.
The Balance Sheet and Assets
Remember this is a small business and the small business $30,000 right off can affect your balance sheet, if your accounts and not handled the right way. I have already posted about this so follow this link for – Why the balance sheet may not be so important for a small business. Have three years of P&L with an asset register and the real value of the assets, rather than the book value. Do not forget intellectual property, that has a value and that could be a key reason why the buyer is considering your business.
You should have a contract register, with the contracts listed, entities, end dates, renewal dates, notice periods and any specials conditions.
Your share of the pie is an important factor buyer consider and could be the major reason why they are buying your business.
Here are Some of the Future Posts Yet to be Written
Think like a Buyer
Think like a buyer, what would a buyer be looking for in my business. Why would a buyer be looking at my business etc. But this topic is quite detailed with allot to consider and will be the subject of another post.
Who Your Target Market is?
How to value a business
That First Meeting
How to market Your Business
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