How to Prepare Your Small Business for an Exit

All entrepreneurs dream of a successful exit from the business, the profitable sale of that business culminating a lifetime of work. That grand departure happens not by chance but through planning. Let Value Scout help you understand whether your business already has a suitable sales status and provide you with an overview of the most popular exit phases.

Check the Current Status of the Business

Before anything else, you must first acquire a realistic perception of your business’s current market position. Is the current sales forecast correct? Do the forecasts offer reassurance over the next six or 12 months or even longer? Constantly growing sales would also be ideal.

Contrary to popular opinion, a strong growth phase is not a good time to exit. Especially at this time, everyone has to step up, including the founders. An exit during this phase could be strategically unwise for the business’ development and could also leave a negative impression on employees and investors. Apart from that, many investors would instead get in after this phase when sales are secured.

Proper Planning is Crucial

At best, the business’s reputation should be clean and solid. It is also important that employees identify as closely as possible with your business.

Ask yourself: Has the business grown out of its infancy, and has its existence been secured even without the direct involvement of the founders? Following are a few aspects for you to take care of before you proceed with the sale.

Related: Why Business Owners Avoid Planning Their Exit. 

Set Your Objectives

Naturally, everyone who runs a business wants to succeed. However, this success does not happen overnight. Therefore, set goals for your business to achieve your vision, step by step. Setting goals means not losing sight of the essentials and giving your work content and meaning. Only then can you concentrate on the essentials. Doing this saves time and energy.

Setting the right goals motivates your and your team, so you can keep going when things get complicated. Setting no goals or the wrong ones leaves you lacking clarity about what you want to achieve. A result is often a half-hearted approach that does not focus on the essentials.

Take Your Time

You will generally achieve a better result if you allow at least six to 12 months to plan for the actual sale of your business properly. In the event of a value gap, you may need more than four or five years to build the value you need for sale.

As soon as it is clear whether the business should stay in the family or be sold, decide whether external expertise is required. It usually makes sense to involve specialists in the assessment and processing. The roles of those involved must be assigned, and the chemistry must be right. It is also worth going through the sales process and the associated communication in detail.

It also makes sense to have a comprehensive, transparent, and truthful business portrait, possibly combined with a Q&A for potential buyers. After these preparations, you can establish a price range commensurate with potential buyers’ interests.

Look at Your Business from the Buyer’s Perspective

It can be worthwhile to put yourself in the buyer’s headspace and ask:

  • What does the buyer value?
  • What is particularly important to him?
  • Why is he interested in the business (or in certain parts of it) at all?
  • How does the business fit into the buyer’s strategic considerations?

Successful acquirers have a strategy and a clear vision for implementation. This results in an inner logic when it comes to identifying the right target business. Experienced buyers don’t just go on a shopping spree. Instead, they know exactly what they seek and which properties give them and their business the essential added value. And at the same time, they check the development potential of the new acquisition.

The experienced buyer determines to what extent and measures both his own business and the business to be acquired can increase in value.

Make Yourself Redundant

Every potential buyer considers whether the business can continue on its successful course after a takeover. Giving up control is not easy for many bosses, but it is good for business and the transferrable value. Those who organize their company so that it runs well without the boss increase the chances of a successful handover. Without clear values and independently working teams, the store won’t run. Hire people in top positions to look after day-to-day activities.

Pay for Some Housekeeping

One of the biggest problems we see is a lack of investment in getting business affairs in order: make sure you’ve prepared the business and yourself for the transaction.

When a guest checks into a hotel, regardless of whether it is a rustic holiday apartment or a five-star hotel, they expect at least one thing: cleanliness. That first impression is extremely important.

Likewise, the first impression in your business is crucial, too. With the proper planning and a concrete implementation and financing plan, proper housekeeping can yield numerous benefits. A wide range of service providers helps business owners ease this burden.

Balance Growth and Profitability

Profitability is an important metric for assessing companies and indicates the relationship between profit and capital. In the long run, companies and self-employed people who do not work profitably will not hold their own in the market.

There are several ways to improve business profitability. The following list shows you which options exist and which respective examples occur in practice.

Measure Example
Reduce cost Reduce material expenses, agree on a discount
Increase sales Offer discounts, launch new products
Correct pricing and billing policy Compare prices with the competitors and possibly adjust prices
Optimize internal organization Structure and distribute tasks more efficiently
Check pricing strategy Analyze whether customers would accept a price increase
Use cooperation Reduce purchase prices
Cost-conscious use of energy Reduce energy consumption

Articulate and Demonstrate a Growth Plan:

A business growth plan provides a schedule for the next one to two years with the primary goal of increasing sales. Do not confuse business growth plans with business plans, which are also essential tools.

The growth strategy enables a company to expand its business. Growth can be achieved through various means. Develop strategies, review the options available, and incorporate the most pertinent into your business plan. Depending on the type of business you’re building, your growth strategy might include:

  • Adding new locations
  • Investing in customer acquisition
  • Franchising opportunities
  • Extending or introducing product lines
  • Selling products online on multiple platforms.

Your industry and specific target market will influence your decisions, but it is almost universally true that customers will play an important role when you acquire new products.

Seize the Day

Selling a business is always a subjective and individual decision. Private reasons often outweigh economic reasons and should receive sufficient consideration. In our experience, owners often hesitate far too long and sometimes suppress the intention to sell for an extended period.

Plausible reasons for postponement include the stress of day-to-day business, hope that children or long-term employees will take over the business, or uncertainty about the future after exiting the business. Procrastination, however, has consequences.

In many cases, the delay costs real money and does not serve the business’s best interests. When an entrepreneur sees the sale of his business approach, the basis for decision-making is often shifted. Investments are postponed, made to a different extent, or not made at all. New sales channels are not opened up, and new paths are subconsciously left to future successors. Growth and expansion are also no longer the top priority, as the future seems uncertain.

Conclusion

For a business owner to find the best exit from his business and professional life requires sufficient preparation and a good balance between the time of sale and business value. While the owner determines a suitable date for the business succession, profitability and current valuation level influence the sale price. An experienced M&A consultant can support the entrepreneur in finding the right time, assess the business for a fair sales price, and help prepare the business for sale.

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Alan Lambert

Alan Lambert

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