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When to start planning to sell your business:

Most business owners have a general idea of when they would like to sell their company and who they think will be a buyer.  The planned timing of the sale might be based on a desired retirement age and the buyer list will likely include a larger company in the industry and maybe key management or family.  And many owners are lucky enough to see their plans work out.  But as the saying goes, you should hope for the best and plan for the worst.

As many owners found out recently, if you’re planned exit happens to take place during a down cycle in the economy you may have to stay on board longer than planned or take less than you had hoped in a sale event.  And other owners have found themselves in a position requiring them to sell before they were ready due to circumstances out of their control such as health issues or the loss of key management/employees.

There are always going to be outside factors that can’t be controlled.  The idea is to have a plan in place and be ready if/when you are faced with them.  Spending a good portion of your life building a business only to have to sell it at a discount because you weren’t prepared is not a pleasant scenario.

Here are a few things you can be working on to make sure you are prepared when the time comes to sell your business:

  1. Financial/operations – Make sure you have professional financial statements and possibly have them audited or reviewed.  Begin building a capable management team and have proper policies and procedures in place.
  2. Understand your options – Do you want to transfer your business to employees through an ESOP?  Maybe a recap with a financial buyer would make more sense?  Or selling outright to a strategic buyer could get you the most value.  If you don’t know the difference you may be leaving money on the table when you sell.
  3. Capital structure – How much debt the company has does not affect the total valuation but it can have a large affect on how much of that value flows through to the owner after the sale.  Make sure you plan accordingly.

These are only a few of the areas that a business owner can address immediately to be prepared for a sale event that might come sooner than expected.  I will focus on each in more detail in future articles.  For now, the point is that you can never be too prepared.  And, with any luck, you can sell on your timing and terms and the early preparation might make the transaction even more lucrative.

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Jon Wiley

Jon Wiley is a Managing Director in the Denver office of Hunter Wise Financial Group.  Hunter Wise is a national investment banking firm providing institutional financing, merger and acquisition, divestiture and advisory services, to middle market companies in a broad range of industries. Contact Jon at jwiley@hunterwise.com or 303-833-1131.

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