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When starting businesses, many entrepreneurs plan to grow and scale them with the long-term goal of eventually selling the company. But the path to a successful exit requires advanced planning to gain significant value from the sale while leaving behind a legacy of accomplishment.
Buyers are also looking to acquire companies with a track record of success or the potential to succeed in the long term. Whether it’s a unique product or service, a promising financial history, or a trail of innovation, your chances of securing a successful exit depend on the value you offer potential buyers.
So, how can you determine if your business is on track for a successful exit? We’ll walk you through the various factors to consider.
Planning a successful business exit starts with asking what it would take to actually sell the business. Ultimately, your readiness to sell and exit your business will vary based on the industry in which you operate or the size of your company.
For instance, it likely takes more preparation ahead of selling a mid-size company than for a smaller one. Similarly, a company managing longer contracts for government procurement, service delivery, or production quotas likely proves more challenging to assess and organize before closing a deal—given the hand-off of continued obligations—than a standard retail store managing supply chains and other vendors.
Below, we’ve provided some questions to help gauge whether you’re ready or on track to sell the business.
Prospective buyers will almost always be interested in how the business earned or spent its capital over the years and may request copies of the books dating back to the start of the business.
Keeping accurate, organized financial documents like tax records, profit and loss statements, or cash flow statements already populate business owners’ to-do lists. But they also help you prepare for an exit by more accurately determining and conveying valuation to potential buyers—whether your anticipated timeline-to-sale ranges months or years from today.
Business exits come with many decisions and changes, such as evaluating offers and the potential for new directions with new ownership. But save the impulsive, gut calls for life’s less consequential decisions—closing a deal rashly risks those involved reading from different pages.
Founders and any other stakeholders must ensure alignment regarding exit plans. Do buyer offers need to meet certain thresholds to be considered? How will gains from the sale be distributed? Once new ownership begins managing the business, will you be concerned over their methods and the preservation of your legacy?
We strongly advise sitting down to decide the answers ahead of time to mitigate potential misunderstandings or disagreements during or after the sale of the business.
Mergers and acquisitions also carry risks of employee job loss due to labor cuts or redundancies. If you’re looking to maintain a legacy of trust with your employees and ensure they’re cared for, it’s crucial to evaluate potential buyers through that lens and inform your current team of the transition’s potential outcomes to fully prepare them for what to expect.
Beyond asking the right questions to prepare your side of an exit, you’ll also need to proactively increase valuation and determine the type of buyer you might shake hands with. Selling an early-stage business in a crowded market can be challenging because of the competition. So, you’ll need to better distinguish yourself for early exits or consider selling a later-stage business with a proven history of innovation or success in the market.
That’s where (proactive) preparation comes in.
Since there are all kinds of buyers out there, it’s important to narrow down who you’d like to sell your business to. On one extreme, you could find a buyer willing to pay a premium for your business but will not maintain the legacy you worked so hard to build. On another, potential buyers who genuinely care about preserving your business’ legacy may have less capital available or come in below the highest competing offer.
Creating the ideal buyer profile can help streamline your preparation leading up to the sale so you know which buyers to approach or consider. If you’re familiar with creating or using customer personas, you can follow a similar process using your business as the product or service:
Determining your preferred buyer early on also helps you build the business with the end goal in mind—like a ‘north star metric’ for earning maximum value from a buyer you choose.
Similarly, your business’ value is built over time—not overnight. Starting to optimize the business’ valuation ahead of time creates opportunities for your company to stand out when it’s time to exit. Then, you can better attract the right buyers and identify the right opportunities for the future of the business.
Some ways to optimize your business value include:
As you optimize the value of your business, it will reflect in your financial records, setting up the business for a profitable sale.
Scaling any business for an exit poses challenges in every scenario. However, doing so with the right systems, processes, and preparation will streamline your exit path, helping you gain maximum value and satisfaction from selling your business.
Scaling any business for an exit poses challenges in every scenario. However, doing so with the right systems, processes, and preparation will streamline your exit path, helping you gain maximum value and satisfaction from selling your business.
Our team of experts at Tomoro has experience developing powerful strategies for long-term business growth, helping you build and maintain wealth—starting with our WealthMapsTM. As experts in business planning, we understand the need to develop the right systems early on in the business life cycle. And when your financial plan revolves around your ideal exit, we help ensure you’re fully prepared when the right opportunity comes knocking.
Contact us to learn more about crafting comprehensive business financial plans tailored to your unique needs and objectives.