Exit Planning: How to Create a Checklist for Your Business Sale
Did you know that of the businesses that are up for sale, only an estimated 20-30% actually sell? Despite the fact that most business owners know that they’ll eventually want to sell their business in order to retire or explore new opportunities, few are preparing an exit plan.
Exit planning isn’t just about making sure that you can sell when you want to. It’s also about selling your business at the highest value possible.
Today, we’re going to talk about preparing your St. Louis or Metro East business for sale, no matter how soon you intend to sell.
Read on to learn what to include on your business exit checklist.
All exit strategies should begin with a business valuation. To do so, you will want to partner with a business brokerage that has experience in your region and with businesses in your niche. Keep in mind that while a business appraiser may seem like the right choice, appraisers typically value businesses for legal purposes like divorce or tax preparation, not for sale.
Verbal opinions of value may be enough if you are the sole owner of your business and do not need anyone else to review your business valuation. However, it is often preferable to receive a written report that breaks down the calculation of value so that you and your partners can understand how your broker arrived at the range of values they’re reporting.
Once you’ve received a range of values, it’s time to consider value preservation. Your business is unlikely to sell immediately, and you do not want to experience any value loss in the coming months or years.
To preserve value, consider hiring a lawyer to perform a legal audit to identify legal concerns that you need to address to avoid litigation. Review your business insurance policy to ensure that it will mitigate losses if necessary. You should also ask your lawyer and financial advisor about any tax liabilities that need to be mitigated, as well.
One reason to begin thinking about your exit strategy before you’re actively looking to sell your business is that an early start gives you time to increase the value of your business. This will take a varied approach and will include steps such as:
- investing in updated marketing strategies with a high ROI to increase your customer base
- reducing excess employee dependency
- reducing employee turnover
- streamlining operations
- replacing old or worn equipment and prioritizing preventative maintenance
- expanding your product or service lines
- creating a strong and incentivized management team
Discuss the best strategies with your financial advisor or business consultant, as not all of these strategies are suitable for every business. It is often better to put your resources toward two to three of these strategies, rather than loosely trying to use all of them.
Considering Exit Options
Often, you will need to consider your exit options at the same time that you are determining the value of your business. An experienced business brokerage can advise you on the steps to take and in what order.
There are two primary exit options to consider. The first is an inside exit option, in which the buyer comes from your family or from within the business, itself. The second is an outside exit option, in which the buyer comes from outside of your family or business.
Keep in mind that while inside exit options may seem simpler on the surface, they can lead to disputes and emotional elements. They also tend to yield a much lower value than an outside exit option. That said, many people wish to keep a business in the family, and an experienced business brokerage can provide the objectivity needed to do so in the smartest and most beneficial way.
Accounting for Involuntary Exit Options
There is a third exit option that many business owners fail to account for. This is the involuntary exit option, which occurs when a business owner has no choice but to sell the business to someone else.
Involuntary exit options most typically occur in the event of the death, disability, or divorce of an owner. While these events are considered unforeseeable, you can still prepare for them in advance. Work with your advisors and lawyers to create legally binding contracts that will determine ownership and mitigate losses in the event of an involuntary exit.
Preparing Your Exit Strategy Team
In order to create and execute an exit strategy, you will need to develop an exit strategy team. Many businesses choose this step as a starting place, but the team can shift or evolve as you complete the steps we’ve mentioned above. If you do create your team before getting a valuation or considering your exit options, prepare to be flexible in adding or removing team members.
Your team should include:
- your business brokerage
- an attorney with experience in estate, tax, and financial planning as well as businesses within your niche and model (i.e. franchised businesses versus family-owned businesses)
- an accountant or CPA with similar experience as your attorney as well as retirement planning or business acquisition experience, depending on what you intend to do after selling your business
- a financial or insurance advisor
If you intend to increase the value of your business before selling, you may also want to work with a business consultant.
Include Fusion in Your Exit Planning Process
All exit planning requires a valuation of your business. While you might not secure a sale at that full value, you should still know how much your business is worth and how much value you might stand to lose or gain.
Fusion is one of the top business brokerages in the St. Louis area, specializing in the sale of small to medium-sized businesses. To find out how we can help you develop your exit plan, contact us today.