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How to Clean Up Your Business Financials and Prepare Your Exit Strategy

Posted by Mark Grossman in Resources

Don’t look too far ahead to the finish line when thinking about selling your company. Have you done the necessary work to ensure that you have the processes and documentation in place for that to be successful?

Two of these processes include cleaning up your small business financials and putting together a comprehensive exit strategy. The more work you can do now the faster you can spring into action if your business broker identifies a strategic buyer right away. Prospective buyers want as much transparency as possible in today’s business environment.

How to Prep Your Business Finances

The same is true of strategic buyers who are thinking about purchasing an established company. This means you need to have as much organized as possible for the due diligence phase of the sale. Avoid red flags that can cause problems with your negotiations by working with an accountant to present clean business tax returns and financial statements that go back at least three years.

Don’t keep any family vehicles on the business books and anticipate the possibility of a buyer asking for year to date results in addition to your previous three years of financial statements. Many people are getting into the due diligence game by being proactive and making it less likely that these red flags will pop up after a strategic buyer was already interested in business financials and the sale.

Someone who was highly interested in your company could back away quickly if you don’t have your finances in order. So you should expect that they’ll be digging into the details and do the work on your side to make that an easier process that builds their confidence. In addition to cleaning up your financials, now is a good time to prepare your exit strategy post evaluation of business finances.

All too often an ill owner or an aging owner or a lack of interest in succession from involved family members means that an exit strategy needs to be implemented right away. You have to do some thinking ahead about what your exit strategy looks like and what the transition will be when you step out of the company and someone else steps in. Look within the company to see what trusted employees would likely stay on in the event of a transition.

This will be one of those details that you might need to negotiate with your strategic buyer in deciding whether or not they will completely reorganize the talent within the company or look to promote existing employees. The more you can position your current staff members as part of an overall strategic team that is necessary for ongoing results, the more likely they will stay on and be interested in working with a new partner. Your new partner confirms their interest after looking at business financials but wants to be convinced about your transition plan, too.

A transition period is also critical for this process too. The transition period makes it possible for everyone to get to know one another and to feel more comfortable about the necessary adjustment period that will evolve. If you’re ready to sell your business, contact the knowledgeable brokers at Website Closers today.