You have a great business and aren’t thinking of selling it right now, but what if you had to? You may be hesitant and need to sell all your business, but can you execute an exit strategy quickly?
According to a study by GrowthSmart Consulting, Inc., up to 70-80% of small business owners’ total net worth is directly tied to their companies. Nevertheless, more than 60% of his executives do not have an “exit” strategy.
With so many at stake, business owners should include an exit strategy as a key component of their overall business plan. Being prepared will help maintain and possibly increase the value of your business. Actions you are taking now may take time to implement to have full impact.
Here are some tips on what information to prepare and what actions to take to prepare your exit strategy.
1) Financial statements based on consistent application of US GAAP (Generally Accepted Accounting Principles) (5-7 years). If you have not yet implemented a financial accounting system, it would be advantageous to do so.
2) Submit your most recent tax returns and payroll withholdings, if applicable
3) complete and clear records of all contracts involving customers, vendors, loans, leases, insurance, etc., and shares owned by others;
4) A comprehensive description of the business, including the products and services offered, pricing, costs, target markets, employee retention, customer satisfaction, business history and competitive analysis;
5) Involve an attorney in the process to ensure your exit plan is aligned with your estate plan.Please consult your accountant/tax attorney to plan and mitigate your tax impact
6) If you operate your business outside of a building you own, consider the value of your business with and without the building included. Would leasing the building to a new owner be of interest to you and the new business owner?
Businesses with good sales, operating margins, cash flow trends, and “lean” balance sheets have higher exit value. If your business needs to improve in any of these areas, this will take time.
So, if you’re a business owner who doesn’t have an exit strategy, act now. One day you and your family will be very grateful for what you have done.
Robert Denten is a volunteer mentor for SCORE’s Tip of the Mitt Chapter. To request free confidential mentoring services offered by SCORE for small businesses, call the Petoskey Regional Chamber of Commerce at (231) 347-4150.