The In and out of a business

One of the most overlooked questions in any small business is “When do I get out of it?” There’s no easy answer to this question, but it’s something every business owner needs to know and plan for.

Part of every business plan should be an estimate of the lifetime of the business. Are you in it for five to ten years with the idea of selling out for a profit at a predetermined time? Is it meant to be a family business you want to pass on to your children when they’re able to take it over?

An exit strategy may also become necessary because you no longer enjoy owning the business. Circumstances change and for many entrepreneurial business owners once the excitement of getting the business ‘off the ground’ has faded there’s insufficient satisfaction to be gained from just running it.

Many key decisions of your business will be determined by the strategy you have for your exit from it. An example of this is financing. If you only plan to be in the business for a few years your financiers will want their money back quickly and your business structure will have to be able to ensure this.

Many small business owners have the goal of handing the business over to a family member when they reach a certain age. That’s fine, but will that person be able to run the business then? Does he or she need particular qualifications? Will he or she need special training before they can take over? All this has to be thought through years in advance.

Other considerations will be based on your own importance to the business. If it literally can’t get along without you because of your expertise or some other factor, what happens if you’re forced to exit by illness or accident? Your plans for the value of the business when you leave it could be totally negated unless you’ve planned for such a contingency.

If your intention is to sell the company at a certain point in time your strategy will be to enhance the value of the business between now and that date by increasing the worth of its assets. How you do that depends on many factors, but for some firms its going to require a sustained drive for a larger customer base and/or an expanded range of products. For others it can mean an emphasis on research and development to develop and patent new products or processes.

To get the best possible price when selling the business it’s essential to maintain accurate and verifiable records from day one. Most buyers looking to purchase a business generally want to see at least three years of financial information.

Be able to prove the profitability of your business. Most owners of small businesses use them to provide for a range of non-operational expenses. Make sure you keep supporting records of all these expenses as prospective buyers will be as unimpressed as taxation authorities by claims without adequate documentation.

Your bookkeeping should be easy to understand, consistent from year to year, and maintained in such a way that any prospective buyer will be convinced of its authenticity. This will also make it easier to get an accurate valuation when determining an asking price.

Chances are pretty good that your departure from the business will be accomplished in phases. It’s often a big help to selling a business if the former owner is willing to stay around in a defined capacity while the new owner acquires an in-depth knowledge of all the systems and processes. This can also help you make a gradual adjustment if you’re retiring or planning a ‘holiday’ from owning a business for a time.

Always keep in mind that circumstances can change. You might find that you want to sell out well before you’d intended, or even that you want to stay on for a longer period than you anticipated. Just remember to always keep the business ready for sale with the books up to date and an accurate valuation possible.

Whatever your plans may be, exiting a business doesn’t have to be a trying or negative experience. It can simply be a part of making progress to an eventual goal or a way to take advantage of new opportunities. Being prepared with a sound exit strategy means you can enjoy your business ownership secure in the knowledge that you’ll be able to leave when you’re ready, not because you have to.

 

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