Every business owner has different long-term goals for their business. Some are content to stick around for the long-haul, slowly growing their business and living off the cash flow before someday passing it onto their children. Others want to scale it quickly and cash out as soon as possible. There’s no right or wrong direction. And others may at some point realize they want to free themselves to follow other pursuits.
Whatever the circumstance, if there does come a time when you are ready to sell your business, it will require some planning. There are a number of important steps you must take to prepare for an exit.
Document everything in detail
Most potential buyers won’t even consider a business unless proper documentation is in place and meticulously detailed. Having impeccable documentation increases the chances of a smooth transition post-acquisition and saves potential buyers money and time.
Documentation to have in place includes:
1. Financials, which includes balance sheets, profit and loss statements, tax returns, list of assets, etc.
2. Operational processes, which includes what, why, and how everything is done internally.
3. Organizational structure, which includes who is responsible for every task and decision, and how the employee hierarchy is structured.
This isn’t an exhaustive list either. A well-documented organization will be able to run smoothly after your eventual departure. It also gives potential buyers something tangible to dig into and demonstrates you have proven, repeatable processes in place.
Have a plan for further growth
A business with a proven and repeatable plan in place to easily turn on the growth spicket will be tremendously more valuable than one that doesn’t. Most potential buyers want to see that you have a workable process in place that will allow for continued growth even when you’re removed from the equation. .
To maximize the value of your sale, it is your responsibility to show them growth and scalability is not only possible, but there is a plan in place to actually do it. This includes a marketing and sales strategy, but also a track record of success. Demonstrate that they’ll be able to reach and sell to new customers beyond the ones you already have.
Have a plan to explain it to your customers
Buyers want to make sure if they buy a business, the customers won’t jump ship. This is especially a concern with service-based businesses in which the owner has a lot of day-to-day interaction with their clients. To guarantee a high customer retention rate, potential buyers want to see a concrete, developed plan to explain the transition to customers and ensure they stick around.
If you have plans of selling, start looking for ways to transition yourself out of the day-to-day now. It will start to get customers used to working with others and not relying on you as the sole point of contact.
Be willing to stay on for a minimum of one year
If you think you’re going to sell your business and immediately cash out and retire on a beach somewhere, think again. Most potential buyers will require the former owner to stick around for at least one year and often, even longer. Even with all the right documentation and strategic planning, the only real way to ensure a smooth transition and a high customer retention rate is to have the former owner leading the way. Transitions take time, and it will almost always require at least one year for the buyer to be comfortable operating the business without the former owner.
Chad Horstman is managing partner at Canal Partners.