Every owner eventually leaves the business. Those who plan the exit deliberately tend to leave on better terms, with more options and fewer concessions at the negotiating table.
An exit plan is considerably more than a decision to list the company. It addresses when to sell, how to prepare the business so that its value is evident to a buyer, what structure the transaction should take, and how the company will operate once you step away.
Why plan ahead
Planning in advance allows you to measure the company’s strengths against what buyers are currently paying for, and to time a sale to the business cycle and to your own circumstances rather than to events. That matters most when the proceeds will fund retirement or a subsequent venture.
The alternative is a sale prompted by health, a partner dispute or a difficult year. Owners in that position negotiate with less time and a weaker hand, and buyers generally recognize it.
Prepare the business for diligence
Much of the value in a sale is protected or lost in preparation. Recast financial statements that clearly separate owner compensation and nonrecurring expenses, documented processes, current customer and supplier contracts, and a management team capable of running the business all make a company easier to evaluate and easier to finance.
Issues that a buyer’s quality of earnings review would uncover are better identified and resolved by the seller in advance, when there is time to address them on your own terms.
Engage an experienced M&A advisor
An advisor identifies buyers who will recognize the value of the business and are capable of carrying it forward, runs a competitive and confidential process, and coordinates the legal and financial work of closing. You remain the authority on running the company; the advisor’s role is to anticipate the questions and negotiating points that arise in a sale and to manage them on your behalf.
A confidential valuation
A valuation establishes what the business would likely command today and identifies the factors that could improve its value before it goes to market.
Plan the transition
Some buyers acquire a company principally for a product line, a contract or a license. Most intend to continue operating the business largely as it is, at least until they understand it well.
A transition plan keeps key managers in place after closing. Buyers frequently ask the owner and senior staff to remain for a defined period under a transition services or consulting agreement, and that arrangement may be compensated. Its scope and duration are best settled at the letter of intent stage rather than left to the purchase agreement.
Begin early
An exit can be planned without outside help, but advisors who have guided other owners through a sale will see the business as a buyer will, including the weaknesses worth addressing first. Market conditions change; thorough preparation retains its value regardless, and the earlier it begins, the more choices you will have when the time comes.
To discuss the sale of your business, contact Twelve31 Advisors at 402-957-1231 or info@twelve31.com.
