Crain's Ask the Expert: What steps should I take if I want to exit my company soon?

According to numerous surveys, more than half of business owners intend to transition ownership of their business during the next 10 years. Yet most business owners do not have a formal strategic or financial plan, and many are unaware of the possible tax and estate implications.

Dominic M. Brault is a managing director at Carleton McKenna & Co. LLC, a boutique investment bank. Mr. Brault advises public and private companies across many industries on valuation, mergers and acquisitions, and capital raising.

As a result, there is a real need for business exit planning, and it should be initiated a year or more in advance of a potential sale. A robust exit plan will help chart a course toward extracting maximum value from the company to reach the seller's goals, and should include the following:

Understand your objectives.

An exit plan will look different than a succession plan. An exit plan is typically geared toward an outside third-party buyer, whereas a succession plan addresses ownership transition to family members or other insiders. The business transfer option you choose will impact taxes, timing and cash considerations.

Assemble a team.

Before you initiate the sale process, assemble a team of experts that will help steer your sale to a positive end. Your deal team should include attorneys, accountants and an investment banker or business broker, all of whom can help you navigate the 2013 tax and deal landscape. You also should build a team to help with your post-transaction estate and retirement needs (such as an estate attorney, insurance planner and/or wealth manager). A good team will allow you to continue to focus on growing the business throughout the sale process, thereby maximizing the sale price and minimizing business disruption.

Understand your business' worth.

Before you go through the effort of preparing your business for sale, you will want to know how much your business is worth. One option would be to get a formal valuation, which would give you a realistic idea of what your business is worth and help you assess your financial and non-financial status, including current industry dynamics and market position. Your investment banker also will be able to provide feedback on valuation metrics for your business.

Make the business look desirable to buyers.

Just like selling a car or house, in order to maximize value, you need to make your business look desirable. In addition to making sure the physical assets of the business are clean and attractive, you should objectively look at the financial opportunity you present to buyers.

For example, a better time to sell is when the business is growing with remaining upside runway. Additionally, your chances of selling at a high price are greater with more formally prepared financial records. However, your reported financials may provide an incomplete picture of how profitable your business will be after a sale and your accountant or investment banker will work on restating the profits/losses and justifying these adjustments. Finally, get your paperwork and records in order, including contracts, permits, titles, corporate charters and leases. Starting early to round up this information will not only help smooth the sale process, but it also may identify any business risks, such as environmental issues or expiring contracts/leases.

Improve business operations and profitability.

It is key to focus on the business' core operations and underlying profitability. There are many things you can do to legitimately make your business more profitable/valuable/less risky to a new owner, including diversifying the customer base, filling management holes, upgrading systems/processes, closing down less profitable business lines, culling unprofitable customers and keeping your work force lean. These are likely items you have thought about many times, but the process of planning to sell can provide the impetus to execute on improvement.

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