Another new year gone and another step closer to the next phase of your life. With the holiday celebrations behind us and a wide open calendar year ahead, now is a great time to ask yourself: Am I ready for a business exit?
Undoubtedly, you want the highest possible return on your investment of time, energy and capital. That’s why it’s not enough to simply put your business on the market. Ensuring a successful exit requires preparation and a well thought-out plan. Or to quote Benjamin Franklin, “By failing to prepare, you are preparing to fail.”
Developing an exit plan can be time consuming. The process is easily pushed to the back burner when your business is experiencing growth and success. Similar to many other projects, however, establishing a deadline for yourself can truly help you meet your goal of selling in 2020. Aligning a benchmark toward your goal with an upcoming holiday can be a helpful way to keep the goal top of mind. You will see the date steadily approaching on your calendar. For example: I plan to complete the following steps by Easter (April 12)...
Get Your Numbers Right
Buyers will look to dissect every element in a company- often looking back at least three years. This means that business owners must stay on top of key financial measures leading up to selling a company. This goes far beyond making sure sales are recorded properly; it is about driving value for your target buyer. It is imperative to have the previous years’ reports organized (P&L, Balance Sheet, Accounts Payable/Receivable,etc), early in the current fiscal year. Further, you will also want to ensure that any and all potential liabilities are up to date- ex: vendor contracts, payroll taxes, potential repairs, etc.
For more on what to prepare for an upcoming sale, download our free eBook.
From the buy-side perspective, the corporate tax return is the holy grail of financial due diligence. In fact, many buyers opt to only make offers after seeing the most recent year’s return. So with that in mind, filing earlier in the year is advantageous. Obtaining a filing extension can delay serious traction you may get from buyers, and ultimately, delay your goal of getting a deal done within the calendar year. Of course, always consult your CPA regarding when to file your corporate tax return.
Truly Know Your Walk-Away Number
Every business owner has a “magic number” in mind in terms of a sale price. You know how much you’ve invested in the company, you know how much you take home every year, and probably most importantly, you know (ideally) how much you want in your pocket after all is said and done.
Of course, this number isn’t always consistent with what the market dictates. To ensure your “magic number” becomes a reality, educate yourself on the current buy-sell landscape within your industry before putting your business up for sale. Obtaining a third-party valuation, can also assist in providing a realistic estimate of your company’s value.
At the end of the day, understand your company's most realistic sale price via research and compare it with the number you originally came up with. You should also take into account other expenses - post-close tax implications, legal & accounting fees, and closing costs. Never go to market without knowing your walk away number.
Think About Your Future
So you’ve made the decision to sell: now may be the perfect time to maximize your exit. Your company’s sales are up, the economy is strong, bank loan interest rates are low, and there is a whole new generation of potential buyers out there. After dedicating countless hours building your business up to where it is today, it can be difficult to flip the switch and think about what happens next. It’s important to take the time to reflect and understand how selling your business will change your life. Ask yourself the following:
- Are you ready to retire?
- Do you want to start a new business?
- Do you want to stay on after the business is sold?
- How will every day life look post-close?
Knowing these answers will help you put your best foot forward as you embark on this transition. Most business owners will only get the chance to sell a business once in their lifetime, so it’s important to maximize your chances of success.
Long Live Deadlines
There will always be distractions - a great opportunity looming or a new way to make something better, and therefore, a reason to push back your deadline. Don’t. Keep your north star in mind and stay true to what you set out to do: completing a sale in 2020.
So with an Easter (April 12) deadline in front of you, a bunch of prep work on the horizon, you are set to begin the process of selling your business.