We want to share some of the insights from that interview here on the blog. This is the third post in this series, and Holly discusses the steps business owners should take to prepare their business for sale.
Jim: So I’m up and running, I’ve had 5 years of success now and my business is doing really well and throwing off a really good income. Maybe I have some employees and a partner. What do I do to start getting ready to exit? I’ve decided I’m either getting close to burnout and I just want to get rid of the thing and move on, or I’m 63 and I want to sell it before I retire at 65. What are some of the things that I can do to get my business ready for an exit, whatever that looks like?
Well there are probably 25 different things that you could do, but for your listeners I think the takeaway for them should be to get your financial health in order. And what I mean by that is make sure that your financials are properly prepared. Make sure your CPA is completely on top of what it is that you’re doing, which means you should be meeting with them more than once a year.
There are three levels of financial preparation that a CPA can offer you: one is a compilation, the next level is a review, and the third level is an audit. If you’re not doing a compilation, start one. Have your CPA do a compilation. I would recommend doing a review, which is the second level of preparation. The third is an audit, and again depending on the circumstances – who you intend to sell your business to, the size of your business, which implies how much money you have to spend on this – then you should consider doing an audit.
A buyer is going to want to see three years of financial statements. Yes, they’ll look at your tax returns, but if you have a review done, which is where I would highly recommend starting, they’re going to be much happier with that. And likewise you can take that next step up and have an audit done.
But don’t go out there and try to think you can sell your business when your brother in law (no offense to anybody!) is doing the tax returns as a side gig, and there’s no consistency and you’re running all of your personal lifestyle through your books. You’re going to have a hard time selling a business. Again, there’s probably another couple dozen things that you can do, and it does take several years to properly prepare your business for sale, but that’s the main issue that most business owners loathe, and they pay for it in terms of their angst they go through and ultimately how much cash they end up putting in their own checkbook.
Holly also founded ExitPromise.com and to date has answered more than 2,000 questions asked by business owners about starting, growing and selling a business.