Contemplating selling your company? Take note of these signs that can ensure a profitable exit.
If you’ve spent years building your business and watching it grow through the highs and lows, you might never be emotionally ready to exit. The best or easiest time to sell your company might not exist – but there are a few ways to gauge when your company is ready for you to let go. If you can tick off all the points below, your company will most likely succeed in your absence, and you can be well on your way to a lucrative exit.
Your Business Has a History of Profitability
Profit is critical to a company’s survival. For a business to remain successful, it must survive through extreme conditions such as a pandemic or an economic downturn. A company with a proven track record of consistently making high-profit margins even in times of volatility has a strong chance of remaining profitable even with new ownership.
Your Equipment, Technology, and Practices are Up-to-Date
Any organization can benefit from innovative technology and business strategies when it comes to revenue. Aside from that, prospective buyers will value a purchase in which additional investments for system updates are not required immediately. Ensuring your company’s equipment, software, technology, assets, and processes are up-to-date secures future growth and contributes to a higher valuation.
You Have a Solid Balance Sheet
Your company’s balance sheet is the strongest indicator of its profitability and ability to generate income from one period to another. Any business’s eventual transaction value is heavily impacted by its cash flow. A company with a strong balance sheet can often attract a significantly higher purchase price while still meeting the buyer’s expectations for return on equity. Before even considering selling, work with a third-party accounting firm to sort out your balance sheet.
You Have an Exemplary and Dependable Management Team
Many businesses rely significantly on their owner to perform at their best. While this may be a testament to outstanding leadership, potential buyers may be hesitant to invest in a business that may not perform as well when you exit. Make sure that your management team works independently and effectively leads the business in your absence. Before going to market, train your leaders to make critical decisions that will assure the business’s continued success even after you exit. It may also be worthwhile to consider hiring a new executive to replace you.
Your Business Processes are Well-Documented and Repeatable
Apart from reliable management, the success of a business depends critically on clearly defined and recorded processes in operations, administration, finance, and even marketing and sales. As a leader, you have probably built numerous processes that have brought your company to where it is today. These practices should be sustained to secure the business’s long-term performance. Put all your best practices in writing and keep them in a data room where current and future company executives can access and replicate them over time. This guarantees that the foundations you’ve established will continue to be practiced in the future.
It may be difficult to determine when you’re ready to sell your business. However, there are ways to boost your company’s value when you decide to exit. You’ve put a lot of time and effort into building your business. Demonstrating its operational independence and potential for growth is key to taking home that big paycheck.
Eric Allison is an M&A expert, healthcare advocate, staffing industry authority, and is currently the President of Staffing Venture Capital, President of TeamRecruit, and CEO of TeamRecruit International.