In Exit Strategies

Scott Bushkie - Cornerstone Business Services

When it came time to sell their business, less than half (43%) of all business owners planned ahead. That’s according to the results of the latest M&A Market Pulse survey, sponsored by IBBA and M&A Source and conducted by the Graziado School of Business at Pepperdine University.

What that means is that most business owners wait for some kind of trigger before they go to market. Those triggers are often negative in nature, stemming from a family health issue, conflict, or (most commonly) burnout.

Unfortunately, that often means business performance is on the decline. Or, at the very least, it means the business owner hasn’t had time to make specific changes that will better position a business for sale. Changes like these:

Audited financials
Business owners who plan ahead have time to get their financials audited the last few years before a sale. This increases buyer and lender confidence and smooths the due diligence process considerably.

Even if you don’t plan years in advance, some proactive bookwork can help clean up your accounting methods, push cash to the bottom line, and create valuable transparency around discretionary spending and owner perks.

Emotional readiness
When it comes time to sell, will you be running away or running toward something? Owners are most likely to achieve a successful business sale when they are emotionally prepared.

It takes some effort, but business owners need to build an identity for themselves, beyond president or CEO. You need something to do with your time and your resources – something that still gives you a sense of pride and accomplishment after a sale.

Growth plans
According to the Market Pulse survey, burnout is consistently one of the top two reasons sellers go to market. But sellers who wait until they are emotionally drained have typically checked out of the business months or years before they pick up the phone.

They’ve stopped innovating, reinvesting in the business, or making long-term growth plans. All that adds up to the kind of stagnation that shows up on the books as well as in employee engagement.

Buyers pay more when the growth strategy is clear and momentum is already underway. Businesses that have plateaued, and those that are on the decline, signal risk to buyers and lenders alike. So even if a buyer sees the potential, they may have a harder time finding a financial institution willing to support the deal.

Experienced management team
Part of preparing for a sale is working yourself out of the business by developing an experienced, empowered management team. The less the business is dependent on you and your knowledge or relationships, the less risk buyers face in a transition. And less risk translates to a higher sale price and/or makes your company more salable.

Selling a well-prepared business is a completely different experience than selling due to some triggering event. You have more leverage and the process is simply more enjoyable and less stressful as you are proactively executing a strategy versus reacting to an event in your life without much control. Good things happen and you’ll be able to walk away from the closing table feeling satisfied and confident you made the right choices.

You want to go out on your terms and sell before you must. The holy grail is a sale timed to align with peaks in both your business and the market. If you can pull that off, it’s typically a win in terms of value and structure. Plus, the sale process will go faster, reducing the inevitable emotional turmoil for you, your family, and your team.

Not everyone achieves such percent synchronicity, but your chances are significantly better if the sale is part of a planned strategy. Whether you’re 10 months or 10 years away from exiting your business, take time now to think about how you will leave.

Will you sell to your employees, a family member, or a third party? Will you sell all your equity or retain some portion for the second bite at the apple? No matter what strategy you think you’ll choose, prep with an M&A advisor who will help you understand your business’s real value and time the market appropriately. Add support from a CPA to minimize taxes and work with a financial advisor to figure out if you can live the lifestyle you want after a sale.

If you can do those three pieces, at minimum, you’’ll be making an intentional, well-informed decision – not a gut-reaction that puts one of the biggest transitions of your life at risk.

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