Exit Strategies: Preparing Your Business for Sale or Transition

Entrepreneurs never really think about giving up control of the business they built with dedication and hard work. However, they must make the hard decision at some point in their professional life. If unprepared for this phase, they can find it challenging to hand the leadership to a worthy successor. Also, it can affect their return on investment if they plan to sell the entity.

Therefore, preparing exit strategies in advance for selling the business or passing it on to a competent individual makes sense. These strategies ensure the company can continue flourishing under the new management, and the outgoing owner can leave with a significant retirement fund. Let us understand how entrepreneurs can plan a successful exit.

Business Exit Strategy and Its Importance

The business exit strategy is the process through which entrepreneurs give up their ownership rights by putting up the business for sale in Canada or passing the baton to one of the senior managers or board members. Planning the exit strategy ensures the business is ready to be taken over by someone in case of an unforeseen event, such as the sudden death of the owner or a health issue that requires urgent retirement. It keeps their returns from the sale intact even if they exit in an emergency or before time.

Exit strategies should be a part of the business plan and long-term goals. It helps the entrepreneur to move the entity towards progress, generating higher revenue and maximum profit at the time of sale. It allows the business owner to start succession planning and prepare a trusted family member or a manager to take up their role in the organisation. It gives them an upper hand in deciding the right time for exit and making optimum gains.

Exit Strategy: Preparing Your Business for Sale

If the business owner decides to sell the company to a new owner, they must make it attractive to buyers. If the business does not have a successful track record, excellent credit score, loyal customers, and long-standing relationships with suppliers and trusted team members, it will not secure the desired value for the seller.

It is vital to ensure the business is financially stable and generates a substantial income over the years. It must showcase a high growth potential and should not have outstanding debts, ongoing litigations and disputes with staff members. Here is a checklist to prepare the business for sale in Canada.

1. Create A Brand Image and Define Its Purpose

The business should not come across as a run-of-the-mill entity. Its unique value proposition and core competencies must stand out in the marketplace. It will be valuable to buyers if it displays a differentiated appeal and competitive edge with a clear vision for growth.

2. Manage the Business Finances Efficiently

Entrepreneurs must be aware that due diligence at the time of sale involves evaluating the financial history. Thus, they must have all the records organised and accurately prepared by a professional accountant to showcase the stability and profitability of the venture to potential buyers.

3. Pay Off the Business Debts Quickly

Every business needs funds to grow. However, the loans must be paid off quickly with the help of effective cash flow management. The business owner can borrow money from investors or stakeholders to make the entity debt-free.

4. Delegate Responsibilities to Staff Members

Entrepreneurs should not be the final decision-makers. They must delegate work and responsibilities to reliable workers who can manage the daily operations without supervision. It makes the organisation ready for a new owner at any time.

5. Focus on Business Growth and Revenue Generation

Entrepreneurs should work on scaling the business after it completes the introduction stage. It requires creating standardised procedures, hiring talented workers, developing attractive marketing techniques, retaining customers and finding new customers through innovation and higher customer satisfaction levels.

6. Evaluate the Business and Look for Buyers

The business owner should be aware of the value of the business to sell it for a profit. The accountant must use different valuation methods to set the right price that leaves room for negotiations. The business must be advertised effectively for sale to find qualified leads that must be screened carefully.

Exit Strategy: Preparing Your Business for Transition

Many entrepreneurs consider handing over the business to a family member or one of the employees or investors. Transitioning can be challenging if you are not prepared in advance. Here is what needs to be done for a smooth transition.

1. Identify the Business Successor and Start Mentoring

Succession planning begins with finding the right candidate for the ownership of the business. If you have to choose a family member or an employee, you need to keep your emotions and bias aside to make the right decision. Once the candidate is identified, they must be involved in the management process for their grooming.

2. Chalk Out Your Role In the Business

Entrepreneurs must clearly define their role in the organisation after the transition. If they wish to be a part of the company even after relinquishing their position, they can stay as one of the board members or stakeholders. They must be clear about the future and establish whether they want to walk out or stay put to guide the new owner.

3. Build A Strong Management Team

The process becomes easier when you hand over the business to someone familiar with the entity. However, you must ensure the new owner gets the staff's desired support to lead confidently. Thus, building a team of qualified and expert employees who can manage the processes is essential.

4. Identify Financing Sources for the Transition

The chosen candidate may not have the required funds for the transition. Thus, the business owner must help them by finding the right loans or introducing them to vendor financing and venture capitalists. The owner can also break down the transition into different phases to make it easier for the new owner to fill the shoes of the existing leader.

Wrapping Up

Entrepreneurs often forget to plan for their own future. Exit planning ensures they create a self-sufficient organisation that a competent owner can manage without their support.