Preparing an Exit Strategy for Selling a Business

Sep 7, 2016

An exit strategy to sell a business traditionally begins for one of three reasons for an entrepreneur working with IBA. Ownership of the company wishes to sell the business and retire. The entrepreneur has taken the privately held company as far as they want or have the ability to as a business owner and desires to sell. Company ownership is forced to sell because of shareholder or partnership disagreement or breakup, health issues, divorce, or death.

Motivation to sell a business initiates the conversation about implementing an exit strategy. However, like all properly executed strategies preparation for future action is the key to future success.

The first step in an exit strategy to sell a business is to assemble the information and documentation necessary to price the company for the marketplace and answer common buyer questions. The items needed for a proper business valuation are substantially similar to the information a buyer will want to review when assessing a potential acquisition. Common business evaluation materials include financial documentation, information on tangible assets (equipment, vehicles, leasehold improvements, and inventory), data on customers & employees, details about intangible assets ranging from technology & internet infrastructure to competitive position & market share, and documentation about facilities and real estate.

Most clients working with IBA on implementing an exit strategy to sell their business will have IBA evaluate their business to determine its estimated market value. IBA is unique in the mergers & acquisitions marketplace related to business evaluations for three reasons. First, IBA offers its business evaluations to potential clients as a complimentary service. The service is offered for free to allow potential clients to sample IBA’s knowledge, experience, and professionalism without financial or legal obligation. It is also free to allow IBA to selectively choose its clients from a position of knowledge. IBA has a reputation in the business brokerage community for accurately assessing market values of businesses and achieving sales within 10% of the original list price for the business.

Second, IBA has the financial and accounting knowledge to value businesses in house. We believe this is a critical component in being able to successfully sell businesses, as it facilitates the future ability to justify the price of the business to buyers, accounting professionals, and lending institutions.

Third, IBA has the deepest well of market & completed transaction knowledge of any business brokerage firm in the Pacific Northwest. Accounting & financial knowledge is important in valuing a business, but to accurately assess the value of a business an evaluation should also incorporate local knowledge of market conditions & completed transactions. IBA, as the oldest brokerage firm in the region, has successfully facilitated over 4000 transaction in Washington, Oregon, & Alaska and maintains a database of information on those & other relevant transactions to employ as market comparable information when evaluating a business. This unique knowledge not available in the public domain is a reason CPA’s and attorneys frequently contact IBA for assistance in valuing businesses or as an expert witness in business disputes involving the value of privately held companies.

No product can be effectively sold until it has been priced. Pricing a business is the first step in implementing an exit strategy to sell a business. This knowledge in hand, a business owner can decide if it is time to sell. If the decision is made to sell, the next step an entrepreneur should make is to assess if customer, vendor, and employee relationships are secure and can be transitioned at time of sale. It is important to complete this assessment, while maintaining confidentiality about the strategic plan being executed to avoid any action that would potentially damage the business. However, it is equally important to possess all relevant knowledge that could be brought into sunlight during due diligence, so the impact of potentially negative information (e.g., a long-time employee planning to retire) can be addressed proactively and its impact mitigated.

The actions described above are “best practice” for starting an exit strategy to sell a business. Prepared to sell, the next step is to locate a buyer.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.