Before selling your business, consider these factors to guarantee your company is fully prepared. Determine its valuation and know the best time to exit. Additionally, ensure all financial statements and books are clean and all outstanding and current taxes have been paid in full. Following are pertinent reasons why business owners cannot afford to risk a hands-off approach to planning a business exit strategy:
What’s your lifecycle stage?
Every business experiences a “business lifecycle”. Depending at what point you are will determine when you are able to successfully exit. Some businesses experience a sudden influx of cash and growth right after the startup phase and decide to jump ship. However, most seasoned owners decide to wait and stabilize their business by continuing beyond startup, through growth, and into the maturity stage.
When is the best time to exit?
The most serious mistake many business owners make is waiting too long to plan the exit. The most successful exit occurs during periods of extraordinary growth for the company, where you can show value to VCs and private equity funds. Those investors see potential in purchasing a company with a valuation based upon increasingly higher revenue and cash flow as well as product and service expansion. At this point, determine whether your business can sustain continued growth and if your company is financially stable enough to administratively handle additional expansion. This determinations are key to exiting.
Have you reached full market potential?
If your company is stable, has a steady revenue stream, and has maximized its client base with its goods or services so further expansion is not foreseeable, you are possibly past your exit stage for VCs and private equity funds. However, you are a prime candidate for a competitor buyout and an excellent candidate for one of the ‘giants’ in your field. After utilizing competitive pricing tactics and increased marketing communications methods, any further growth would be an excessive expense. You have reached market potential and maximized value for a strategic buyout.
Consider business valuation
Valuation is used to determine the current worth of your company. There are a variety of methods used to arrive at this conclusion. An expert financial analyst will evaluate your company’s financial structure, history of earnings, growth and quality of management, market value of company assets, and expected cash inflow to arrive at a valuation.
Cost
Improving business exit marketability and valuation can be time consuming and costly. You will maximize your business exit if you strengthen or upgrade management and financial systems and procedures and hire professionals. Doing so will make sure you are ready to show the best your company can offer.
Source: barlaw.co.il