For most business owners, their company represents the cornerstone of their financial future. Yet many postpone exit planning until it’s nearly time to sell. As a wealth adviser who’s guided numerous business owners through this process, I’ve seen firsthand how early preparation can dramatically impact both the sale price and the smoothness of the transition.
Why Early Preparation Matters
Starting your exit planning process well before you intend to sell provides several strategic advantages. It reduces risk if unexpected circumstances force a quick sale. It positions your business to capitalise on opportunities from potential buyers who may approach unexpectedly. Perhaps most importantly, it’s simply good commercial housekeeping.
Financial Foundations for a Profitable Exit
When preparing to sell your business, focus first on the performance measurements that directly impact valuation. Most businesses sell at a negotiated value based on a multiple of EBIT (Earnings Before Interest and Tax). You can improve this multiple by:
- Reducing costs strategically
- Driving revenue growth
- Positioning your business to demonstrate long-term potential
Accounting housekeeping is equally crucial. Small business owners often run personal expenses through business accounts, which must be “backed out” during valuation. Maintaining clean financial statements and tax returns for several years before a sale creates transparency that builds buyer confidence.
For businesses with inventory, ensure stock management is efficient and well-documented. Redundant stock reduces perceived value, while comprehensive inventory records demonstrate operational excellence to prospective buyers.
The Human Element in Exit Planning
The management structure of your business significantly influences who might purchase it. You can sell a business as either:
- Owner-operated: Where the buyer expects to step in and run the business
- Fully managed: Where systems and staff operate independently of the owner
Each approach attracts different types of buyers. Deciding which route to take early in your exit planning process helps position your business appropriately and ensures a smooth transition.
Documentation of processes, maintenance procedures, and intellectual property protection is are essential components that make your business more attractive to potential buyers. These elements demonstrate that the business can continue to run efficiently after the sale.
When considering the human element, it’s crucial to clearly define structures, roles, and responsibilities within your organisation. If you’re selling as owner-operated, you’ll need to clearly outline what responsibilities the owner currently handles and which ones could be transitioned. For a fully managed sale, you’ll want to demonstrate how you’ve successfully removed yourself from day-to-day operations.
Consider creating detailed job descriptions, organisational charts, and succession plans for key positions. Document any training programs or professional development initiatives that help maintain a skilled workforce. If you have a strong management team in place, highlight their experience and track record. These human capital elements can significantly enhance the perceived value of your business and make the transition smoother for a new owner.
Navigating Multiple Ownership Complexities
Exit planning becomes considerably more complex with multiple business partners or family members involved. Different owners may have varying timelines, objectives, or views on the ideal exit strategy.
The key way to address this is to have those open conversations early. Ideally, they happened at the point of incorporation so that everyone is on the same page. This can be done with a shareholders’ agreement that reflects these discussions.
Multiple ownership can sometimes simplify succession planning, particularly when selling shares to employees. In other cases, when owners have misaligned objectives, professional mediation may be necessary to develop exit plans that satisfy all parties.
Seeking Professional Guidance
The scale of your business typically determines which advisers can best support your exit strategy:
- For businesses with less than $10 million in revenue, a trusted adviser such as an accountant, lawyer, or exit strategy consultant often provides sufficient guidance
- Larger businesses may benefit from investment bankers or specialised business brokers
- Independent directors or board members can offer valuable perspective
- Financial advisers with business exit expertise can help align your business exit with your personal wealth objectives
Planning Today for Tomorrow’s Success
Whether your exit strategy involves selling the business outright, transferring to family members, selling down to employees over time, or another approach, the fundamental principle remains: start planning earlier than you think necessary.
A well-structured exit plan ensures suppliers and customers experience minimal disruption, protects the value you’ve built, and maximises the financial outcome that will fund your next chapter.
What steps have you taken to prepare your business for eventual sale? The sooner you begin developing comprehensive business exit strategies, the better positioned you’ll be when opportunity knocks.