For some business owners, succession planning is a complex and delicate matter involving family members and a long, gradual transition out of the company. Others simply sell the business and move on. There are many variations in between, of course, but if you're leaning toward a business sale, here are seven ways to prepare:
- Develop or renew your business plan. Identify the challenges and opportunities of your company and explain how and why it's ready for a sale. Address what distinguishes your business from the competition, and include a viable strategy that speaks to sustainable growth.
- Ensure you have a solid management team. You should have a management team in place that's, essentially, a redundancy of you. Your leaders should have the vision and know-how to keep the company moving forward without disruption during and after a sale.
- Upgrade your technology. Buyers will look much more favorably on a business with up-to-date, reliable, and cost-effective IT systems. This may mean investing in upgrades that make your company a "plug and play" proposition for a new owner.
- Estimate the true value of your business. Obtaining a realistic, carefully calculated business appraisal will lessen the likelihood that you'll leave money on the table. A professional valuator can calculate a defensible, marketable value estimate.
- Optimize balance sheet structure. Value can be added by removing nonoperating assets that aren't part of normal operations, minimizing inventory levels, and evaluating the condition of capital equipment and debt-financing levels.
- Minimize tax liability. Seek tax advice early in the sale process - before you make any major changes or investments. Recent tax law changes may significantly affect a business owner's tax position.
- Assemble all applicable paperwork. Gather and update all account statements and agreements such as contracts, leases, insurance policies, customer/supplier lists, and tax filings. Prospective buyers will request these documents as part of their due diligence.
Succession planning should play a role in every business owner's long-term goals. Selling the business may be the simplest option, though there are many other ways to transition ownership. Let us know if you're considering selling, and we can give you more information and ideas.