“By failing to prepare, you are preparing to fail” – Benjamin Franklin.

After years of hard work late nights and inordinate amounts of time, energy and money, you may be thinking about selling your company. Did you know that the critical window to plan for a transition in ownership is 18 months to 3 years before the actual sale?

As a business owner myself, I know the daily demands that come from creating, building and operating a law firm. It is the failure to step out of the day-to-day operations and look objectively at every corner of your business that can potentially devalue your creation.

I have seen friends and colleagues receive less than they deserve simply because they did not create a strategic exit plan. A recent Forbes article made this statement: “Today, the reason most owners are not able to exit their businesses on their terms is unpreparedness caused by a failure to act” (Forbes, 2017).

Over the years, I have observed five major mistakes that can easily be avoided in the exit planning process:

  1. Not taking adequate time to prepare. It is never too soon to plan for the sale of your business and the more time you take to plan, the better outcome you will receive. Plan on evaluating your business operations and correcting inefficiencies or problems at least 18 months before actively looking for a buyer.
  2. Not knowing what buyers look for in a potential acquisition. One of the critical components of an exit plan is to know what potential buyers look for when placing a value on your company. Although you know the true worth of your business, buyers are interested in the hard facts of your business. Serious buyers will look at five major areas of your business:
  • Legal (contract review, corporate governance, risk management)
  • Finance (review of capital and debt structure, A/R needs, growth capital needs)
  • Accounting/Reporting (audits, ICFR, tax issues)
  • Human Capital (policies/procedures, compensation aligned with roles, compliance)
  • IT/IP systems (operating software, data security, disaster recovery plan)

When best practices are embedded in each of these five areas of your company, a potential buyer or investor is more likely to increase the enterprise value on your business.

  1. Not being clear why you are selling or transferring ownership. This is not an easy process and it is made that much more difficult if you don’t understand why you are passing on your legacy. Are you looking for financial security in the future? Perhaps the time has come to retire or start a new venture. Whatever may be the case for you, knowing the reason behind your exit will help you determine the best options for your business.
  2. Not preparing your company for the exit. Buyers want a business that will be easily transferred into their hands and you can help the process along by taking these steps:
  • Take a step back – if your company and employees are too reliant on you, your departure may cause difficulties in the transition…slowly easing yourself away from the major operations of the company will help you in the transfer process end game.
  • Have the appropriate documentation – having all of your business operations in writing will help potential buyers understand the functions and requirements of the business ahead of time.
  • Offer to train the new management – you may have skills that are specific to your business and offering your expertise to the new owners is a great way to build trust and increase the value of your company to potential buyers.
  1. Don’t take the first offer. It is important that you look at more than just the financial part of an offer. This is your legacy and the person who takes over your company should be more than just the highest bidder. You want to find someone who will continue to grow your business long after you are gone. Jumping on the first offer can lead to regrets, so be sure to take your time in choosing your successor.

These are just a few of the avoidable mistakes I have seen in exit planning, but I have learned that taking the time to plan for this moment in your company’s life cycle can make a huge difference. Don’t stand in the way of your own legacy – take the time to plan, and you’ll open up a whole world of opportunities.

James D. Shields is founder and principal of Shields Legal Group. An entrepreneur at heart, he has owned or invested in numerous companies, and he has advised C-suite executives and business owners on strategy, risk evaluation and resolution to enhance shareholder value and grow revenue. The creator of Growth to Exit, Shields shares his business acumen and strategic planning skills with middle-market companies in transition to higher enterprise value or succession planning.

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