The Financial Toolbox

Where’s The Exit?

Plan Now For The Sale Of Your Business To Maximize Its Value

If you take nothing else away after reading this Article, remember this nugget: No matter how secure you are in your business, no matter how satisfied, no matter how you expect to go on forever, you have to be constantly planning for the day you will no longer own your business. You can’t wait until the last minute to put together a successful exit strategy.

There are three stages to planning for your exit from the business: long-term planning (greater than three years); intermediate planning (from six months to three years); and short-term planning (less than six months).

Long-Term Planning

Develop management depth. Make sure that your employees are trained in all aspects of the operation so that if a key member of your management team leaves, a replacement is prepared to step in, with no discernible loss of productivity, until you are able to hire a new person or promote from within.

Perform appropriate tax planning. Your accountant or financial planner can take steps early to ensure that your tax situation is optimized for all present and future scenarios. Not only might you save money now, you will also be in better financial shape when it is time to sell your business.

Improve financial statements. Again, this is something all business owners should be doing as a matter of good practice. Nothing attracts qualified, motivated buyers more than a solid financial statement.

Formalize partnership agreements. Too many partnership deals operate on nothing more than a handshake and someone’s good word. While that might work in many cases, it is always best to reduce agreements to writing so that there are no questions about the terms and responsibilities for all parties involved.

Purchase any minority interests. Having several partial owners can complicate matters when it comes time to sell your business. As appropriate, try to reduce the number of minority interests in your business. They might have been beneficial when you were growing the business, but as your venture matures, consider buying out those who hold minority interests.

Negotiate transferability. Make sure that all your lease documents - property, equipment, machinery, intellectual rights, for example - allow for a smooth transfer to a new owner. As your business grows, your leverage to demand transferability of leased items grows also.

Intermediate Planning

Clean up your books. Your accountant can make sure that your books reflect the true health of your business.

Invest in taxes. Pay your taxes not only because it’s the right thing to do, but also as a way to invest in your business. By including all income in your tax return, you’ll boost the amount of money that you can expect to take in when you sell your business.

Computerize your operations. These days it is hard to believe that any well-run business is not computerized. If yours is, make sure that your hardware and software are up-to-date and functioning properly. If your business is not computerized, hire an Information Technology (IT) consultant who can help you set up a system designed to meet your business needs.

Address potential environmental issues. Potential buyers will want to know that your business is free from any environmental hazards. Identifying and remediating contamination such as oil spills, drums of hazardous materials, and asbestos can be time-consuming and expensive. It is better to meet the challenge head-on than to ignore it and have a potential deal blow up at the last minute. This is true even if you lease your premises rather than own the property.

Negotiate any contractual agreements. As with leases, some contractual agreements can be affected by a transfer of ownership. Have an attorney review all contracts and determine any potential sticking points so they can be resolved even before your business goes on the market.

Short-Term Planning

Clean up the premises to increase your "curb appeal." According to an old saying, ‘’You never get a second chance to make a first impression." Buyers will form opinions about the viability of your business based on its appearance. Make sure that landscaping is neat and trimmed, parking lots are in good repair, the outside of your building has a fresh coat of paint, and the inside is clean and orderly.

Sell or replace obsolete equipment. In addition to increasing efficiency and productivity, getting rid of old equipment will increase the attractiveness of your business.

Clean up receivables and inventory. Having a lot of money out on the street or having warehouses full of product sends a negative message to potential buyers. Be aggressive in collecting what’s owed to you. Eliminate old inventory; buyers are not willing to pay for obsolete inventory anyway.

Trim your payroll. No one wants to layoff good employees. But potential buyers want to know that you are operating with a lean, mean workforce. Review each position carefully to determine how much it contributes to the bottom line. If you can eliminate positions without hurting productivity, then do it.

Thomas J. Profy, IV, Esquire, Begley, Carlin & Mandio, LLP, Article exerpt from "Where’s the Exit" by Michael Lefkowitz, CBI, M&AMI, Founder and managing Partner Benjamin Ross Group.