Never too early for an exit strategy

Posted on September 18, 2017

It’s never too early to plan your exit.

Starting with the end in mind is good strategy in chess – and in business.

For business owners, successful exit hinges on succession. But let’s put into perspective how uncommon it is to celebrate a graceful departure: About 80 per cent of the businesses on the market will not sell.

The most common reason is owners don’t realize the need to properly plan for the sale of their business.

Statistics Canada found many business owners are at the age where thoughts of retirement start to germinate. Those between the age of 50 and 64 make up about 50 per cent of those who own small and medium-sized businesses.

However, a survey by PwC Canada found only 18 per cent of Canadian family businesses have developed a comprehensive succession plan that has been both documented and communicated. That’s less than one-fifth.

Let’s look at the key considerations for an exit strategy.

Consider your options. Identifying how you’ll make your exit is a good first step that can have an impact on your preparations. Will you pass your business on to a successor? Will you transfer ownership through a management or employee buyout? Will you sell the business to a third-party?

Create a guidebook. It may sound like common sense, but to transition out of a business, it has to be able to operate without you. A business is much more desirable to a buyer when there are clear operating procedures. Develop an operations manual that outlines key procedures – day to day and month to month.

Get your house in order. You need to make sure all of your documents are up to date and well-packaged. That includes up to three years of accountant prepared financials, balance sheets and tax returns. Organize franchise or licensing agreements, employee contracts and leases.

Make an inventory. Often businesses are made up of many pieces. Know what those pieces are and what they’re worth. Some of those pieces are physical, like company vehicles, equipment, inventory and real estate. Some of those pieces are intangible, like customer lists and proprietary processes.

Turn to the experts. There are complicated issues involved in selling a business that are best handled by experts to avoid a damaging mistake – tax issues, employee rights, confidentiality and contracts to name a few. Tapping into the expertise of a professional and experienced business broker can save you a lot of grief.

Determine the value. Once you have a clear picture of your inventory and you have your documents well organized, it’s easier to determine the true value of your business. Again, turning to an expert can mean the difference between a successful sale at the right price and stagnating on the market or selling far below the true value.

Thinking through your exit strategy and taking clear steps toward succession – even when you’re more focused on growth than transition – is the best way to ensure you have a well-run and well-prepared business when it’s time to move on to your next journey.

For experienced advice, contact Business Finders Canada now at 1-888-377-8009.

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