Ten Tips to Help Make Your Business "Exit-Ready"

Getting a fair price for your business, when it is time to sell, is largely based on its “transferable value”.  Here are ten quick tips to focus on in advance of a potential sale of your business to improve its marketability and therefore its transferable value.

1. Make yourself redundant.   Too many lower-middle market businesses thrive when run by their founder and falter when run by the next generation or new owners.  Astute buyers intrinsically understand that if a business acquisition is to be successful, there must be a way to reduce its reliance on its existing owner/ownership team.  Taking the time to build the management bench generates buyers that are much more open to acquisitions when the risk of transitioning is reduced.

2. Build/Develop a strategic growth plan. Many entrepreneurs didn’t become successful by spending inordinate amounts of time on generating fancy powerpoints from their strategic planning sessions. Typically, they know their market backward and frontwards and instinctively know where they are headed and how they will get there.  Unfortunately, that doesn’t translate well into transferable value.  Sellers benefit from having a well-articulated, documented, strategic growth plan even if it differs from their “thesis” on how to grow the business.

3. Clean up your financials.  For some companies that means getting their books audited, for others, it means cleaning up their balance sheet by writing off or selling obsolete inventory or redundant assets.  Working capital levels need to be adjusted to an appropriate amount as historical levels will likely be part of the negotiations.  Owner’s benefits and related party transactions are another area that should be cleaned up in advance of a sale.

4. Rationalize your spending. Deep scrutiny of operating expenses should be an ongoing process, but it is even more important when preparing the business for a sale.  Furthermore, while no one would suggest that you should radically reduce capital expenditures in advance of a planned sale, focusing primarily on maintenance or replacement Capex would be prudent. Any expansion-type Capex should have clear ROIs to help new owners understand how the benefits will accrue to them.

5. Focus on Quality of Earnings. High-quality revenue is generally considered to be sales that are sustainable and predictable, are profitable, and come from a diversity of products, customers, markets, etc.  High-quality revenue reduces the risk for any new owner or management team and therefore can increase business value. 

6. Stage your business for a sale.  Similar in concept to staging your house in advance of a sale, it is important to make sure that the office and business premises are neat, uncluttered, and clean. 

7. Reduce risk for buyers.  Business buyers and sellers view risk from an entirely different frame of reference.  Anything a seller can do before marketing the business to improve terms or secure improved supplier, customer, or employee contracts can reduce the perceived risk for a new owner. The degree of reliance on key suppliers is also something that a seller can focus on by finding alternatives or having backup plans in place.  Putting stay bonuses in place with key employees may also be necessary.

8. Review and upgrade IT Systems.  A thorough review of all things IT-related is usually a good idea when preparing for a sale.  How reliable and secure are your systems?  Is all your software properly licensed and up to date?  Many times how you collect, analyze, interpret, and utilize your customer, product, and market data is incredibly important to a buyer and needs upgrading.

9. Document your processes. Buyers typically want to make sure that all operating procedures and company policies are well documented and up to date. Sellers should consider imposing a vigourous “self-audit” similar in substance to what would be undertaken under any third-party audit.

10. Implement HR best practices. For top-performing teams, everyone must have a clear understanding of what is expected of them, their role, and how it fits within the organization’s goals. Putting HR best practices in place for recruiting, onboarding, evaluating, training, developing, promoting, and retaining employees can make a business much more marketable when it's time to sell.

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