Why You Need to be Thinking About Exiting Your Business (Even If You’re Never Going to Sell)

Organize your files

We often hear business owners say, “I don’t need to think about an exit strategy because I’m not going to sell my business anyway.” But they do! And here’s why: Your potential acquirer’s due diligence is the perfect way to organize your files. Period.

What kind of documents would you want to see if you were buying a business? Certainly, you’d want to make sure you didn’t get sued by any undisclosed or unsettled disputes. You’d want to know that you wouldn’t be closed down because you didn’t have the correct licenses and permits, or that they weren’t up to date. You’d want to protect your self from buyers who might claim better pricing and terms from the former owner.

What kind of records would you want to see? How about the monthly and annual sales history from the beginning? How about the chart of accounts? What about the individual sales history for every customer? How about any and all sales contracts and agreements, formal or in correspondence? And how about all of their personnel records and all their vendor and supplier contracts just to name a few? You must protect yourself!

For Your Legal Protection

As you can see, you need all this stuff to operate your own business anyway, but there’s more! When we sold our business, we were surprised by a few requests that caught us off guard. And, if we had thought about it, we really should have had those items at the ready.

Perhaps the biggest surprise was the acquirer’s request for legal sign-offs for any and all art work, like logos, labels, advertising materials, trade dress, and any other custom art to help sell our business or our products. We thought that the fact that we had hired the artists and paid them was enough. No. They wanted to protect themselves, and rightfully so, from any artist coming back and claiming ownership and exacting a big payment later. This was especially true of the label design.

Another big surprise was the disclosures. Ironically, these were to protect us from anything that could come up later that we hadn’t divulged. Well, in 20 years of business, lots of issues come up! But they are settled, solved, or satisfied, and you move on, right? No need to keep track, right? Wrong! If any of that stuff raises its ugly head later, your acquirer has grounds to come back on you. We should have been keeping some kind of a journal or file or at least tagged these kinds of correspondences and settlements, so they could be pulled out later. As it was, we had to spend 17 hrs-a-day for over a week to get them all written down.

To Help You Run Your Business

Preparing your filing system for an eventual acquisition is just good business because you need to have this stuff too. It will help you run your business, reflect on the past, and keep track of your mistakes, challenges, and solutions. It will remind you to ask for those signoffs when any art job is done. Preparing your files will remind you to keep your entitlements up to date.

Besides, you may just want to sell your business someday.

And when you do, you’ll be ready! The longer the deal takes, the less money you will make. Why? Because the word will leak out, your sales manager will quit (and may take your key buyers with them). Your staff will quit (and take their key vendors’ relationships with them), your customers will want to wait to see what the new owner will charge, and what the quality of goods and services will be. And your suppliers will reign in your credit because you are a “short timer”.

In other words, when it comes to a business sale, be prepared from day one. Make it quick and quiet! Time is Money!