Is It Time To Cash Out? Are You Prepared?

Cash Out

For business owners, the only time they will get the biggest payday of their life is when they cash out the business they have built. But only if they are ready.

Ideally, an exit strategy was established in the business plan from day one. If the business was not launched with an eventual exit in mind, too many entrepreneurs are just buying themselves a job. “Given the costs, stresses and risks involved in most businesses, that is a strange way to keep oneself employed,” says Paul Banister, Director of Tax for Grant Thornton Australia.

Owner Independent/ Buyer Ready

The shift to making the company both independent of the owner and buyer ready can take years and could involve many components.

Those factors include:

  1. Establishing the right systems, structures, processes to drive operations independent of owner involvement
  2. Getting the ‘right people on the bus’ and ‘in the right seats’
  3. Identifying and developing your successor team
  4. Building a corporate culture to take the business to ‘higher profits and beyond’
  5. Mastering financial matters to drive strong and predictable financial outcomes
  6. Building a strong distinct brand that has market value and positioning
  7. Minimizing risk and optimizing business value

Paul Banister says, “A business that operates successfully and profitably without relying on the day-to-day efforts of the owner is something worth paying for.” I agree.

But, buyers today are frustrated that they can’t find ‘good companies’ to buy that do not depend on the owner’s direct involvement. Qualified buyers are ready, hungry and searching. But if they are going to pay top dollar, they also expect the performance of a professionally run business, not a lifestyle business. Yet, most small and medium size businesses in the US are still being run largely as lifestyle businesses, not ready to cash out.

Exit Strategy - A Necessity

“It’s never too early or too late to plan your exit.”

It’s time to stop dancing around the fact that most entrepreneurs still do not have an exit strategy in mind.

A thoughtful, calculated, flexible exit strategy puts the business owner in a strong position to respond to the unexpected; whether that’s a fortuitous event such as a timely inbound offer for the business, or the more difficult unexpected event such as a disagreement, death, disability or divorce.

With an exit strategy laid out, business owners can take control of the selling process and eliminate superfluous problems, distractions or delays, which can reduce the price a business can fetch.

A well-developed exit strategy:

  • Allows owners to reduce risks and maximize value in the business to ensure that, as the seller, they retain control and leverage in price negotiation and
  • Helps set clear expectations for partners, colleagues, advisors and their family.

Like any strategic plan, the exit strategy is not a static document (one and done). The exit strategy should be reviewed often and adjusted according to the needs and goals of both the owner and the company.

Exit Readiness

If you insist on being an ostrich, with your head in the sand, your business will never be ready for you to cash out. An owner who prepares the business for new ownership must commit to ensuring all aspects of the business are appealing to potential buyers, which may be dramatically different from what is appealing and comfortable to them up to now.

Put yourself in the buyer’s shoes and take a look at your company from their perspective. Implement your own internal due diligence to identify any possible area they could flag, that could decrease the potential sale price you command at closing.

If you review your company’s position and value today and find it does not achieve your goal or align well with what your potential buyers seek, you may choose to slow down the rush to market, to better position your company to be buyer ready and buyer attractive on your terms.
Don’t rush to cash out if you are not ready. If you need help getting your business ready to achieve your optimum exit outcome, call me.