Many owners of small and mid-sized businesses fail to consider an exit strategy in the event that they decide to retire. An exit strategy will ensure that you can sell the business for maximum value, or that you can pass it on to children and still function as a going concern.

Step 1: In Preparing Clean up the numbers

With small and mid-sized closely held businesses, it is often difficult to determine what the owner is actually earning, or what is known as seller discretionary earnings.  Seller discretionary earnings include not only salary and bonuses, but also any personal expense that you are charging to the business but that have no connection to the generation of revenue. Examples include personal restaurant meals, vacations, personal telephone expenses, and personal auto expenses.  Prepare financial statements that exclude all personal expenses and that indicate true profit.

Step 2: Replace current accountant

You may want to consider replacing your current accountant with a “brand” name firm.  Financial institutions have more respect for brand name accounting firms than for solo practitioners, although they will not admit this. This means that a prospective buyer will have an easier time procuring financing if s/he presents financial statements to a bank whereby the loan officer is familiar with the accounting firm and respects it.

Step 3: Preparing Your Business for Sale: Cross train employees

This means that within your organization, each key position should have an internal replacement.  While this is often difficult for very small businesses, it should be a goal.

Step 4: Replace yourself

Can you take a six week vacation and still be in business when you return?  If your honest answer is no, then you really have a job and not a business.  You should have someone trained that can easily step into your shoes.

Step 5: Preparing Your Business for Sale: Taxes

Prior to placing the business on the market, be sure that all tax returns have been filed and all tax payments are up to date.  You do not want this to become an issue two days prior to closing.

Step 6: Preparing Your Business for Sale: Hiring a broker

You should give as much thought to hiring broker as you would to hiring an attorney or CPA. Many business people do not give much thought to this since the broker is only paid if a sale is consummated.  A good broker will help you maximize the sale value of your business. It will save considerable time as well as help you maintain confidentiality.