A Timeline for Creating Your Exit Plan -- Starting Now!
When you are ready to create an Exit Plan for your business, you will find it to be a very personal project. When my clients retain me to help them hone their exit strategy, it’s always a different story from one company to the next. There is really no way a cookie cutter approach can be very effective. On the other hand, any business owner should be aware of certain general steps to focus on before selling a business. Carefully considering the following six steps will give you a good start at creating a great Exit Plan.
Five Years Before the Projected Sale: Take stock of both your business and your personal financial goals and current situation. Once you set a timeline to guide when you want to exit your business, make the commitment to create a business Exit Plan. Even better, list particular tasks you need to accomplish to reach your projected goals within the timeline you have made.
Four Years Before the Projected Sale: Start working on a few key strategic actions that will help grow your business well before you are ready to transfer ownership. Decrease your company’s dependence on a small number of customers and vendors. Your business will command a higher price if you can show positive growth and can diversify your client and supplier base.
Three Years Before the Projected Sale: Have an audit done by a reputable accountant, who can review the financial statements of your business and subsidiaries. If you can show audited financials to a prospective buyer, they will feel more secure about pursuing the sale. Many lenders now require audited statements, and in some cases (such as public companies) a minimum of three years of statements are required.
Two Years Before the Projected Sale: Begin the implementation of your Succession Plan. Be sure you have established a stable and viable management team that, in your absence, will be able to handle company operations successfully. If your customers and suppliers are encouraged to interact more with your management team and less with you personally, it will stabilize future transfer of ownership and allow you to get free of day to day operations when you are ready to. Your future buyers will be looking to see whether the business is overly dependent on you, the owner, for its success.
One Year Before the Projected Sale: Clean up your financials. Most buyers will want to see your business financial statements on an EBITDA basis. Perform a detailed review of the structure of your corporation and any personal financial structures (including trusts and wills). This can help your professional Exit Plan advisors as they strategize to minimize the tax consequences of the sale.
Right Now: Assemble your advisory team to guide your actions as you plan your business exit. As I’ve said before, you will need legal, accounting, tax, and investment advice, and you shouldn’t scrimp on finding advisors with extensive experience in acquisitions and mergers. Your current advisory team may do well with the day to day business tasks, but you want to be confident that they can help you transition out of your business as smoothly and profitably as possible.
