You launched a small business several years ago. Things are going well after a few early missteps. You have a vague notion that you'd like to sell the business at some point, but for now you're just enjoying the ride. Beyond including some boilerplate language in your business plan, you haven't even thought about an exit strategy, let alone put one in place.
That's a mistake.
Plan Your Plan
You can't sell a business overnight. SCORE, a resource partner of the U.S. Small Business Administration, estimates that it takes six months to two years to complete the process. And that's once you've decided to sell. Just getting to that point takes even longer. "Start planning two to five years in advance," SCORE advises, "and learn the due diligence process."
Your business will have to furnish three to five years' worth of accurate bookkeeping records. "Buyers want to see clean financial records, generally accepted accounting principles [GAAP], a formal audit, internal due diligence before buyers come in, revenue growth, as well as projections of profitability," Kerri Salls, author of Harvest Your Wealth, tells the QuickBooks Resource Center. "Any inconsistencies, problems, or lack of information in the previous three years could kill the sale or at least raise enough questions to delay the sale or lower the sale price."
In addition, you should compile written documentation not only of your accounting processes and internal controls, but also of your basic business procedures. "Documenting procedures is like an instruction manual. It provides a smoother transition for a buyer," says The Business Transfer Newsletter.
Thoroughly documenting your processes pays dividends before the sale, too. "Your business gets systematized," Owen McGab Enaohwo writes on business2community.com. "Your employees know exactly how to get repetitive tasks done without your constant involvement."
Put Yourself in the Buyer's Shoes
Another good strategy to prepare your business for sale is to imagine how it might look to a prospective buyer. Megan Sullivan put together a list of "10 Questions You Need to Ask Before Buying a Business", which includes a request for current financial statements. "While it would be nice to be able to trust a business' own financial analysis," Sullivan writes, "it's best to be sure the forms have been vetted by accounting professionals."
Cutting corners is never a good idea, but particularly not when you're positioning your business for sale.
Buying new equipment or upgrading your place of business when you're planning to sell might seem like a waste of money. It's not. It's an investment that could yield a sizable return. "I use the analogy of curb appeal in selling a house," Salls says.
Stay Invested as Long as You're Invested
Once you've decided to sell, it's important that you remain fully engaged until the sale is final. Just as the buyer will be investigating you, you should investigate the buyer. "Get two to three potential buyers just in case the initial deal falters," Investopedia recommends. Also, all agreements should be in writing, and any potential buyers should sign a confidentiality agreement.
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