If your goal as a business owner is to sell your business, you will optimize the price received by creating transferable value upon sale, which is the value of the enterprise without you as the owner being present. This is a key element many buyers look and pay for. Let’s examine how to incorporate this strategy into your exit plan.
Your exit plan is a multi-faceted process that ends with obtaining a desired selling price to meet your post-sale financial needs. Working backward, you need to objectively look at your business and ensure a plan and structure is in place to get your business at an operating level that is commensurate with your desired selling price. Following are three important components to that process.
An objective review of your management team must be made to determine whether they have the skill sets and capabilities to operate the business independent of your involvement. Generally some restructuring is likely required which involves at a minimum identifying an individual who ultimately can lead the day-to-day management of the company as the COO. Depending on the size of your business, other management roles may need to be identified to assist the COO. To attract and retain the best talent, key members of the management team should be incentivized with equity options to grow the business as required.
Development of Long-Range Operating Plan
In most cases, the current revenue and profitability in your business is not up to the level corresponding with the selling price you require. You need to determine how big a gap needs to be filled to hit your targets and develop a long-range plan (assumes more than one year) to realistically get from where you are today to where you want to be. Someone will need to lead this process and evaluate the existing relationships between margins, working capital requirements and cash flow to sales and net income. These elements become the tools within your business to reach your financial goals and must be astutely coordinated to work together efficiently. The plan needs to carefully outline what needs to be done, identify responsible parties to carry out the tasks, establish clear timelines for assigned tasks and include supporting forecasts to provide expected outcomes from executing the plan. You as the business owner must establish regular reviews of the progress that is made and be proactive vs. reactive if plans deviate from schedule.
Determination of Funding Requirements
Depending on the long-range operating plan and evaluation of internal cash flow and working capital requirements, you need to determine what, if any, funding will be required to implement your plans. Creating the details outlined above in your long-range operating plan should provide most of what you need to meet with your banker or other sources of financing. The supporting documents must show how you arrived at the level of funding required, how the funds will be used and how they will be repaid.
Having these components in place will assist you in reaching your financial goals, but more importantly, position your business at sale as a turnkey operation, which will enhance its value in the eyes of prospective buyers. An outsourced CFO can be a valuable resource in carrying out the tasks outlined above.