So you've built a business, and now it's time to exit. You want to sell. Maybe you want to do something different--or maybe you're ready to hang up the gloves and take a much-needed extended vacation.

Here's the issue: Even if you run a profitable business, that doesn't mean you are in a good position to sell. In fact, just like a car, you could be driving something that still runs, but under the hood, you may have a mess on your hands.

This is what so many business owners forget in the process of building a company. They are so focused on all the other day-to-day tasks that the foundational pieces that will be needed in order to successfully exit get pushed aside--until too much time has passed, and they never actually become part of the house.

But here's why this is more poignant than ever. According to Harvard Business Review, of the small percentage of businesses that are successfully sold, more than 70 percent fail to meet the expectations of the buyer. And let's put that in the context of today: According to Mike Kramer, CEO of ManageHub: "Over 70 percent of businesses are owned by baby boomers who are nearing retirement, and over 80 percent of baby boomer businesses are not 'transaction-ready,' meaning they are unlikely to find a buyer."

Kramer added commentary to the subject by detailing the importance of properly tracking and managing the internal knowledge of your business. Because here's the thing: When it comes time to sell, and leaders or management personnel are replaced, how does the next group of operates know how to pick up where the originals left off? How do they know how the business actually functions, where things are supposed to go, everyday processes that the people within the company performed through years of experience, but have no way of transitioning to the next team?

This is the cherry on top: In the next seven years, there will be a glut of businesses seeking a transaction. However, only "buyer-ready" businesses will be considered.

What does it take to be considered a viable candidate? I asked Brent Beshore, CEO of Adventur.es, to weigh in. His firm focuses on "buying family-owned companies with consistent annual pre-tax net earnings between $1 million and $10 million."

"When we look for prospective businesses, the last thing we want to do is disrupt the culture," said Beshore. "Someone is going to have to keep running the place successfully, so our job is to determine the intentions of the seller and help them exit while maintaining what made the company thrive in the first place." 

Beshore went on to explain that the No. 1 suggestion he would give to owners looking to exit their businesses is to think through what the transaction could mean for them--including the structuring perspective, transition period, tax implications, etc. It is far better, he added, for sellers to be upfront about their intentions and expectations from the start than to get through the bulk of the process and have those things come to light down the road.

"In order to exit effectively, you need to have your cards in order. You need to have done your homework and have things prepared in a way so that we can get a clear sense of what the business actually looks like," said Beshore. "If you aren't diligent in tracking and organizing your internal processes, your way of doing things, how is anyone going to know what to do once you've left? They won't."

This is what is so terrifying about the current state of small businesses, specifically those that have been operated by baby boomers for decades and have been around since long before the digital age. If things were not properly documented along the way, then the business remains alive only as long as the people who started it are intact--which makes exiting nearly impossible.

Words of wisdom to older generations looking to exit and younger generations who are just now starting their own businesses: Organization of your internal processes is not an option. It needs to be a fundamental practice and habit.

Published on: Mar 21, 2017
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