Making A Grand Business Financials Exit: What Every Baby-Boomer Business Owner Must Do to Successfully Sell Their Baby with a Bang

Written by Carol Coughlin. Posted in Financial Strategy

We’ve all heard the news. The largest and most influential generation to ever grace our planet is aging. As a result, we are seeing more and more messages, products and services geared toward retirement preparation, healthcare concerns and the like. The Boomers are preparing for the next phase of their lives and, for many, that means selling their business.

The fact is that if you are a Baby-Boomer and a business owner, you will likely sell your business within the next ten years. But before you stash that idea in a drawer until it’s actually time to sell, consider this:

At the very moment you are expecting to turn a profit from the sale of your business, countless other Boomer business owners will be anticipating the same.

The sheer number of Boomers alone means you’ll almost certainly be selling in a buyer’s market – crowded and competitive. And just like selling your home in a buyer’s market, the best kept businesses with the best amenities in the best locations are going to attract the highest prices. Therefore, the best choice a Boomer business owner can make right now, is to start planning their exit – right now.

So, how do you plan your exit? What do you need to do to be ready to sell? What will those lucky buyers be looking for anyway?

A company’s value is generally two to eight times the EBITDA range (depending on a wide variety of factors). Your job is to up the value of your business today so that you are positioned to sell well tomorrow. Simply put, you need to put your financial house in order. Essentially, run your business like you are going to sell it at any moment.
Here’s how to keep your business’s financial picture in tip-top shape for a successful and profitable sale:

Exit Edict #1: Close your books and records on a timely basis.
All business owners – Boomer or not – need to close their books by the 15th day following the end of the month. This will provide you with timely feedback on your financial trends. Make sure to guard against errors like duplicate recording by taking the time to thoroughly review your revenue and expenses. A comparison to budget should also be part of your analysis, including spending the time it takes to understand the variances.

Exit Edict #2: Keep books and records in generally accepted accounting principles (GAAP), as well as on a cash basis.
Many small to mid-sized companies only look at their financial reports on a cash or tax basis. This can be very deceiving in services/consulting companies where deposits are often paid in advance of project effort. GAAP accounting matches revenue with work effort and is a language understood not only by accountants, but also by bankers, investors and buyers.

Exit Edict #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 need to be isolated in your internal reporting so that you can tell how the underlying business is doing without these non-repeatable costs.

Exit Edict #4: Compare each year’s performance to the prior year’s.

Explain the variances. Doing this yearly increases the probability that you’ll remember the specifics when you sell your company in a few years. Hopefully, you’ll have good stories to tell.

Exit Edict #5: Regularly compare your company’s performance to benchmarks.

If you don’t have this information, consult with a CFO Advisor who can conduct the comparison for you. Many privately held companies fly blind, never looking at their barometer to ascertain how they are doing in the big sky. Recently, I met with a company whose inventory was three times higher than the industry standard. This meant that $2M in cash was tied up in excess inventory. Just think how that company could use that cash during the tight credit market we’re in right now.

Exit Edict #6: Know your business financials inside and out.
You will learn a lot about your company if you wait until a due diligence precedent prior to a sale to review your financials. Unfortunately, you may learn that your business is not attractive enough to fetch a good price. You need to know your profit margins on each line of business, and, if you are growing organically, you need to know the start-up costs associated with each new site or location, as well as which products and territories are winners and losers. You also need to know your largest customers and your profitability from the relationship. In short, you need to know everything in order to avoid unpleasant surprises.

Exit Edict #7: Finally, don’t be satisfied with mediocre results.
Your suitors will not pay top dollar for mediocre financials and you shouldn’t tolerate sub par results either. To make sure your company remains attractive, regularly evaluate your costs. Is your pricing in line with your effort? Are your positions value added?

If you take the time to incorporate these Exit Edicts into the way you do business today, you will be well-rewarded in the future when it’s time to sell. While your Boomer buddies are scrambling to prove the worth of their businesses, you will be on your way to a secure retirement. Or, knowing the adventurous nature of Boomers, on your way to your next profitable business venture.

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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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