The In and Out of a Business

One of the most overlooked questions in any small business is “When do I get out of it?” or “When will they take me out”, i.e. in a box? There’s no easy answer to this question, but it’s something every business owner needs to know and plan for.

Part of every business plan, and yes this plan should be documented, should be an estimate of the lifetime of the business as it relates to you the business owner. Are you in it for five to ten years with the idea of selling out at a predetermined price at a predetermined time? Is it meant to be a family business you want to pass on to your children when they’re able to take it over? These are some of the key questions you need to be asking yourself.

If your intention is to sell the company at a certain point in time and at a certain price your strategy should be to enhance the value of the business between now and that date by increasing the worth of its assets. Surprise, most small business owners have other ideas, e.g. how do write this and that off. Most are thinking how do I save taxes when they should be thinking how should I increase Value. How you do that depends on many factors, but for some businesses it’s going to require a sustained drive for a larger customer base and/or an expanded range of products. For others it can mean an emphasis on research and development to develop and patent new products or processes and yet again for others it may be to make the business less dependent on the owner. Nothing and I mean nothing adversely affects the business’ worth more than having the business be solely dependent on the business owner.

Other aspects to consider:

A pet peeve of mine; to get the best possible price when selling the business it’s essential to maintain accurate and verifiable records from day one. Consequently, the most fundamental of business fundamentals is to have your bookkeeping , i.e. record keeping in order. It should be easy to understand, consistent from year to year, and maintained in such a way that any prospective buyer will be convinced of its authenticity. This will also make it easier to get an accurate valuation when determining an asking price.

And remember, clean those skeletons. Buyers hate skeletons, and they adversely affect the value of the business. Examples of Skeletons would include but are not limited to difficult customers, poor relationships with suppliers, an underperforming employee or a difficult to deal with employee. Before you sell, clean this stuff up, if you are not sure you have skeletons or what they might be, having a second opinion or second set of eyes to assess your business is priceless.

Chances are pretty good that the departure from a small business by the business owner will be accomplished in phases. It’s often a big help to selling a business if the former owner is willing to stay around in a defined capacity while the new owner acquires an in-depth knowledge of all the systems and processes and especially the customers, without which a business will cease to exist.

Whatever your plans may be, exiting a business should not be thought of as a trying or negative experience. It is simply part of the process of designing a business that works. A business that you are a part of but it is apart from you.

Should you wish assistance in designing a business that works from its’ beginning up to and including the time that you choose to leave, do give us a call and we will provide those outside pair of eyes that are so valuable in gaining a true perspective of where your business is at.

 

 

 

 

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5110 50 St. Stony Plain

What Our Clients Say
"Business diagnostic and improvement services, my business couldn’t do without this!"
Colin Presizniuk
President
Colindale & Associates Inc.