Exit Planning Facts: The Reality of Leaving Your Business

Written by Carol Coughlin. Posted in Financial Strategy

Of the approximately 22 million businesses operating in the U.S. today, only a very small percentage will ever go public. In fact, only a fraction of one percent.

For business owners in that fraction, the future is clear. An IPO will enable the owner’s exit from the business, secure retirement or next venture.

But for the rest of us, the statistical truth is this: No matter how successful your business becomes, an IPO will not likely be in the cards.

The vast majority of business owners need a concrete Exit Plan. And this is where another surprising fact comes into play: Most business owners equate their exit from their business with their death. Therefore, owners typically seek insurance solutions to address the issue.

While we advocate purchasing insurance in a number of scenarios, the problem is that just purchasing insurance to address a handful of issues that will arise in the event of your death is NOT exit planning. It’s business contingency planning. And there’s a difference.

While contingency planning puts stop-gap measures in place for “What if” scenarios, Exit Planning puts long-term action steps in place for “What IS” your desired result – not various scenarios, but what you actually want and need to leave your business in a conscious and fully planned manner.

So, how do you plan your exit? What do you need to do to exit consciously, seamlessly and with greater personal wealth?

Quite simply, you need to increase the value of your business and position it to sell. Interestingly, the best way to do that is to:

Run your business like you might sell it at any moment.

Here are just a few ways to keep your business’s financial picture in sell-ready condition:

BottomLine’s Run Your Business to Sell Strategies:

#1: Close your books and records on a timely basis.
 Close your books no later than the 15th day following the end of the month so you have timely feedback on trends. Guard against errors like duplicate recording. Compare actuals to budget, taking time to understand variances.

#2: Keep books and records in generally accepted accounting principles (GAAP), as well as on a cash basis. Many companies only review financial reports on a cash or tax basis. This can be deceiving in companies where deposits are paid in advance, for example. GAAP accounting matches revenue with work effort and is understood by everyone, including bankers and investors.

#3: One-time expenses and expenses for start-up programs and businesses should be separately identified. Let’s say that instead of buying into a new territory, you grow organically. You will need to hire consultants and employees and have other expenses before you make your first dollar. These costs should be isolated in your internal reporting so that you can tell how the underlying business is doing without these non-repeatable costs.

#4: Compare each year’s performance to the prior year’s. Explain the variances because this increases the probability that you’ll remember the specifics when you sell.

#5: Regularly compare your company’s performance. Many privately held companies fly blind. But to sell your company, you must know where it stands against other opportunities your buyers might have.

#6: Know your business financials inside and out. If you wait until a due diligence process prior to a sale to review your financials, you may learn that your business is not attractive enough to fetch a good price. Know financials in advance to avoid unpleasant surprises.

#7: Don’t be satisfied with mediocre results. Buyers will not pay top dollar for mediocre financials and you shouldn’t tolerate sub-par results either. Make sure your company is attractive by regularly evaluating results and adjusting how you operate.

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Carol Coughlin

Carol Coughlin founded BottomLine Growth Strategies, Inc., in 2006 as a way for small and medium-sized businesses to access the same high-level financial and operational expertise that gives large companies a distinct advantage. Using her own extensive corporate experience and willingness to sit in the hot seat as a catalyst, Carol helps BottomLine Growth clients climb to the summit of their success.
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