Selling A Company Prep Tip #1: Create a Business Plan And An Exit Plan?

Mar 27th

Selling A Company Prep Tip #1: Create a Business Plan And An Exit Plan?

Posted in General Business
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Create a business plan and an exit plan when selling a company? Are you coming or going? This may seem counter-intuitive, but when you are selling a company, update your existing business plan—or create one if none exists.

Although many businesses call their annual budget a “business plan,” it isn’t what we are talking about here. A business plan is a written document that management follows to develop, grow, and manage a business. Business plans address strategic and operational issues. They describe your organization’s present status and plans for the future, and they map financial, operational, and marketing strategies that enable a business to reach its goals. A potential buyer wants to see that you and your team have the foresight and discipline to do this level of proactive planning.

If you’ve never created a business plan, believe it or not, now is a great time to pull one together. You may find that you have an opportunity to increase the value of your company in a relatively short time—or you may discover something of hidden value that will help your sale price.

Besides providing strategic information in prepping your business for sale, your business plan becomes part of your marketing package when you sell. It should include three years of audited financials and a three-year financial projection, as that’s what buyers usually request. Also, summarize your industry and its growth trends and include a review of competitors and how your business is positioned against them. A buyer will want to understand the size and health of your industry.

This is a chance to put into place plans to address particular challenges your company faces. For example, if your industry has growth challenges due to global competition, look for both the healthiest areas of the industry and business and focus building around them, or create new capabilities to address the stressed industry circumstances. These would then be documented in the business plan.

An objective SWOT analysis (strengths, weaknesses, opportunities, and threats) is a standard element of a business plan. Although it may be difficult for you to be objective—you’ll be inclined to overstate strengths and downplay weaknesses—an honest discussion about weaknesses makes you a more credible seller. In addition, you’re legally and morally obliged to disclose everything of relevance to potential buyers.

Hiring an advisor or consultant might keep you objective and move your preparation for sale more swiftly, because a thorough and objective SWOT analysis helps buyers determine what future investment they need to make. When we do this work with clients, we find that credibility increases with the inclusion of any third-party industry reports, analyses, forecasts, and similar documents.

Also perhaps counter-intuitively, this would be a good time to revisit your mission or vision statement as well. Does it capture your business principles and goals? Does it send the message that is both congruent with what your organization does and that will attract the buyer you want?

It may seem like writing a business plan when you are planning your exit strategy is like closing the barn door after the horse has left. However, you can be sure potential buyers will want to see one. And it will force you through an important exercise that will help you see the business as they will.

I invite you to use these ideas as you start the journey to sell a business.