Assuming that you do want to sell, here are the benefits of a bit of “exit planning:”

·        Increase the price you will receive (i.e. increase your current profitability and cash flow)

·        Reduce the time on the market

·        Reduce you tax liability

·        Increase the amount that a Bank is willing to loan a Buyer of the business (and reduce the amount that you may have to finance)

·        Create a structure for your company – so that it is less dependent upon you for day-to-day operations. After all, Buyers want some assurance that the business will operate without you.

As you can see – nothing to lose and everything to gain!

Step 1 – Increase Your Profitability

As you will see in the following section on pricing – the most significant determinant of the value (defined here as the price that you will get in a sale) of your business is your profitability. Every dollar that is added to profit will most likely provide $1 to $3 or more, dollars in sales price.

A.     Develop a budget

B.     Get your expenses under control

C.     Improve your purchasing practices to increase gross margin

D.      Staff appropriately, and do whatever you can to make you staff for efficient

E.      If you plan to sell relatively soon, don’t add new equipment or make other capital expenditures. Unless the equipment has an immediate effect on cash flow, it is not likely to increase your sales price. You will not recover the value of the investment.

Likewise, if you have sellable assets that are not currently contributing to profitability – sell them now. 

Be careful here – do not defer maintenance or usual upgrades, your sales price will be reduced if the Buyer thinks they’ll need to make significant capital improvements after their purchase.

Step 2 – Get Your Books in Order

Nothing turns an interested Buyer off more quickly than bad records, particularly financial statements. Regardless of how great a business looks, or how bright the potential – as a matter of basic credibility, everything is suspect if the books aren’t up to date, detailed, verifiable, fully reconciled and available.

A.     You’ll need and income and expense statements, balance sheets and tax returns – that correlate to the income statements for at least the last 3 years. 

B.     All revenue should be verifiable to bank statements.

C.     All expenses should have supporting invoices

D.     Payroll taxes and sales taxes should be up to date

E.      Returns prepared by a CPA are preferred to those that are self-prepared.

F.      Have a detailed list of your capital assets, including a description, purchase date and original price

G.     Have a copy of your lease and all amendments

H.     Detailed records of your clients, and business completed for each very important and valuable

In most cases: “If it isn’t recorded and fully verifiable – it didn’t happen!”

Step 3 – Clean It Up!

Just as with any other capital investment – a house, a car, a machine – no one will pay top dollar for something that looks like a mess or a wreck. Regardless of the type of business, a successful business will look successful. The facility and employees should look good!

A.     Make sure the physical facility looks its best – painted, neat, clean and organized.

B.     Get rid of old inventory and non-working equipment or vehicles.

C.     Make sure your employees look neat (consider a dress code and/or uniform). FYI – neat employees often feel better about themselves and their company – which will translate to increased productivity and retention.

A picture is worth a thousand words – make it look good!

Step 4 – Minimize You Taxes

 A little pre-planning with a CPA can sometimes save a HUGE amount on taxes.

A.      Is your business the right type of entity?

B.      Would a stock sale or asset sale be of more benefit to you?

C.      If you don’t need all of your sales proceeds at the time of sale – perhaps a structured sale, that pays over a predetermined time (without risk) would be beneficial ..

D.      How are you going to invest the proceeds?

Again, a bit of pre-planning in this area will help minimize taxes and may define the nature of the transaction … which you really need to know before you get into the midst of a transaction.