Exit Planning and Growth – What should you focus on?

You’re thinking of selling your business…now what? It can be an overwhelming process to know where to start and what buyers are going to be focusing on. Here are some pointers on where to start as you target a future exit; which revolves around planning ahead and running a financially conservative business.

Quality of Earnings Report

Historically, companies planning for an exit strategy would focus on three years of audited financial statements as the standard reporting expected by a buyer. Today, a Quality of Earnings Report is much more desirable. For either of these to be effective (or even possible) however, you need to have accurate books. With those in place your CPA can come in and give you a Quality of Earnings Report to prove beyond a doubt to a potential buyer that the financial information you are providing is correct.

Conservative Financial Management

The Growth Mindset seems to dominate every discussion.  But growth without strong financials is an upside-down pyramid, doomed to topple at the slightest tremor.  Business owners must ensure that they have a strong Balance Sheet, are keeping cash on-hand and using debt appropriately. There are a growing number of private equity buyers dropping into the $1-3 million EBITDA figures. While that creates healthy competition, at those rates the investors are looking closely at the way a business is run – they are searching for those conservatively run businesses.

To optimize your exit plan, focus on running a financially conservative business, it will invariably increase the value of your business. Turns out, it’s not all about growth; it’s about safety. A safe business is a more valuable business.

Sustainable Growth

Rapid growth without scalable repeatable processes and solid financials is never a sure bet.  Buyers are looking past growth to factors such as:

  • Customer Concentration
  • Intellectual Property (IP)
  • Technology
  • Processes

Serious buyers want to ensure you have really achieved sustainable growth, and that requires a variety of customers, solid products and amazing service, so you retain the customers you have. Sustainable growth is quality growth.

Future Opportunity or Past History?

Is it more important to have opportunity in the future or success in the past? Historical data is important to show sustainable financial management. Future opportunities, however, open buyers up to the possibilities of the NEXT stage of growth. Future-focused buyers are driving valuations up. How do you tell the story of what the next 5 – 10 years look like for your business? Highlight opportunities that hinge on the new technologies in your field.  Focus on new products in the pipeline or those in beta testing.  Imagine the markets those new products and technologies can access. Tell the story of the future by using past historical data to back up predictions about future growth. The past points the way to the opportunities of the future.