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Exit Planning: Things to keep in mind if you’re planning to sell

Ian MacFadden
Ian MacFadden - Contributed

By Ian MACFADDEN

TRURO, N.S. —

As an entrepreneur, if you are building a company that exhibits solid potential for future growth, you will be in an ideal position when it comes time to retire and sell the business.

Investors are attracted to growth industries and growth companies. They want to know that their investment will provide them with the best return possible, based on expectations of future revenue growth and cash flow.

Successful entrepreneurs will adopt a “build-to-sell” mentality, which means subjecting every decision and investment to the test: “If I do this, will it make my company more valuable and more attractive to a potential future investor?”

For example, say your core business is building custom staircases for the high-end residential market. You have an excellent reputation and a strong niche market, and you’re making a pretty good living, but profit margins have been slipping. There is proven technology available that will automate key processes, drive your costs down, and significantly improve your margins. Do you explore making this investment, or do you keep the status quo? If you are building the business with a view to selling it when you retire, you will take the path that maximizes your operation’s productivity, profit margins and competitiveness. That’s what a new owner will be prepared to invest in.

If you’re planning to sell the business to finance all or some of your retirement, here are some other “dos and don’ts” you might want to keep in mind.

Do…

  • Take steps to lessen the dependence of the business on you by delegating responsibilities to others and/or identifying a “second in command”;
  • Create opportunities for others in the business to develop their capabilities;
  • Ensure key employees are loyal to the business by providing competitive salaries/wages, and consider employee retention strategies such as quality training, attractive performance bonuses and/or profit sharing;
  • Maintain well-documented management systems, and operations manuals that would be critical in the transition to new owners;
  • Develop long-term, loyal customer relationships that a new owner can count on.

Do not…

  • “Take your foot of the gas…” It’s important to continue growing revenue and profitability by looking for new customers and markets;
  • Procrastinate dealing with difficult issues… such as choosing a family successor;
  • Delay filling key vacant positions in a short-sighted attempt to reduce expenses;
  • Delay seeking out timely advice from your professional advisors whose expertise will be essential to a successful transition.

Whether or not you have specific plans to sell your business, building it with a future sale in mind encourages a management mindset and discipline that will make for a strong and favourable outcome.

Ian MacFadden is co-founder and Partner of exitRITE Planning Services. His column appears the first Thursday of each month. You can reach Ian at ian@exitrite.com or go to www.exitrite.com

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