Exit Readiness
The best time to prepare your business for sale is when you don't want to sell.
A successful exit doesn't begin when you hire an M&A advisor or receive an offer.
It begins years earlier.
The businesses that are better positioned for a future transaction have reliable financial information, healthy profitability, strong management, documented systems and less dependence on the owner.
Whether you plan to sell in three years, five years or aren't sure you'll sell at all, building an exit-ready business gives you more options.
Don't Wait Until a Buyer Is at the Table
Once a transaction begins, the buyer controls much of the timetable.
That's a difficult time to discover that your financial information doesn't stand up to scrutiny, customer concentration is too high, margins have been declining, key relationships depend entirely on you or the company can't operate effectively without your involvement.
These issues can affect negotiations, valuation and the ability to complete a transaction.
And many of them can't be fixed in a few months.
Exit readiness gives you the time to identify those weaknesses before they become deal issues.
What Does an Exit-Ready Business Look Like?
There isn't one perfect business.
But there are characteristics that can make a company easier for another owner to understand, operate and ultimately acquire.
Reliable Financial Information
Financial statements, management reporting and supporting information should provide a clear and credible picture of the company's performance.
Sustainable Profitability
Buyers want to understand not only how much the company earns, but the quality and sustainability of those earnings.
Predictable Revenue
Recurring revenue, strong customer retention and a healthy pipeline can provide greater visibility into future performance.
Diversified Customers
Significant dependence on a small number of customers can increase perceived risk.
A Business That Can Operate Without the Founder
If the owner holds the key customer relationships, makes every important decision and drives most sales, the buyer may question what happens after the owner leaves.
Strong Management
A capable management team helps demonstrate that the business can continue operating through a transition in ownership.
Systems and Processes
Documented processes, appropriate controls and reliable systems make the business easier to understand and transfer.
A Clear Growth Story
A buyer isn't only acquiring what you've built. They will also want to understand the opportunity ahead.
Financial Due Diligence Starts Before the Deal
Your financial information will eventually tell the story of your business to someone who doesn't know it the way you do.
The question is whether it tells the story you think it does.
Before entering a transaction, owners should understand issues such as:
Historical revenue and profitability trends
Gross and net margins
Quality and consistency of earnings
Customer and revenue concentration
Recurring versus non-recurring revenue
Working-capital requirements
Owner and related-party expenses
Unusual or non-recurring items
Forecasting accuracy
Project or service-line profitability
Financial controls and reporting
Documentation supporting significant financial assumptions
Finding problems before due diligence gives you an opportunity to address them.
Finding them during due diligence means the buyer finds them too.
Close the Value Gap Before You Exit
Knowing what your business may be worth today is only part of the equation.
You also need to understand what the business needs to be worth for you to achieve your financial objectives.
The difference is your value gap.
If a gap exists, we can work backwards:
Where are you today?
Where do you need to be?
What needs to change in the business to help close the gap?
How much time do we have to do it?
That creates a practical value-building roadmap rather than waiting until you're ready to sell and hoping the numbers work.
Exit Readiness Is Not the Transaction
My role is not to replace your M&A advisor, business broker, lawyer, tax advisor or wealth advisor.
Each plays an important role when a transaction begins.
My work happens primarily before that point.
I help strengthen the financial performance, reporting, systems and business value that you eventually bring to the transaction.
When the time comes, I can also work alongside your transaction advisors to help you understand and respond to financial questions that arise throughout the process.
Your Exit May Not Be a Traditional Sale
Selling to a third party isn't the only way ownership can change.
Depending on the business and the owner's objectives, succession could eventually involve family, management, employees or an Employee Ownership Trust.
You don't need to decide today.
Building a profitable, well-managed, transferable business creates more possibilities regardless of the path you ultimately choose.
Start Before You're Ready
If you think you may want to step away from your business within the next several years, now is the time to understand what could stand between you and a successful transition.
The earlier you identify the gaps, the more opportunity you have to address them.
And if you ultimately decide not to sell?
You'll still own a stronger business.
Build a stronger business. Create more freedom. Have more options.
