Tuesday, 28 February 2012

Plan your exit strategy before preparing to sell

A few months ago I wrote about the joys of helping business owners sell their companies.  I also wrote about the sorrows of explaining to someone contemplating selling their business that it might not be worth as much as they think.

But somewhere in the middle are situations where owners are able to sell their business but might have been able to sell for a higher price if they had done things differently.

I’m not talking about how they ran the company, their location or the quality of their equipment.  I’m talking about how they prepared the company for sale.

Business owners need to give careful consideration to how they want to exit their business.  An exit strategy is a long-term plan for transferring the ownership of their company to another entity.  The characteristic of a plan means it is conceived long before it becomes desirable or necessary.  This is what distinguishes exit strategies from more abrupt actions such as selling out.

Selling a business can be a challenge even in the hottest of markets.  To have a good chance of getting what they want, seller should give themselves plenty of time to lay the groundwork for a sale.  This isn’t done in a matter of weeks, but rather months and in many cases years.

Yet, research shows that the vast majority of business owners don’t have an exit strategy.

One of the first steps a seller needs to take is getting a thorough understanding of what they have to sell, or what they could have to sell, that somebody else might want to buy.

In other words, sellers should be spending time identifying types of potential buyers and finding out what they are looking for.

For example, if a seller wants to build a company that could be acquired by a larger competitor; they may decide to target different types of customers, in some cases sacrificing income in the interim.  A smaller quantity but higher quality of client base might be attractive to a competitor. 

In other cases, if a seller’s goal is to be merged with a related company, the seller might not need to pay much attention to the quality or quantity of customers they keep.  The seller might need to be more concerned with the product or services they provide.

The second step an owner should consider is to understand what happens during and after the sale.

Beyond the operational strategies outlined above, there are issues associated with the actual transition such as taxes, estate planning, key personnel, contracts, etc., which can impact the value of the business.

I’ll write about those issues in future blogs.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.

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