Many business owners don’t think they need to start exit planning for their businesses, until they’re actually ready to exit their business. Why waste time worrying about something that’s years away when you’re already busy tackling the daily demands of running a business? Maybe it’s too hard to think about eventually leaving a business that is such a large part of your life now and it’s easier to put that off until later. However, if a business owner doesn’t start thinking about his exit until he’s ready to leave, he may have waited too long and the resulting transition may be difficult and less profitable than it could be. Instead, it’s important to plan ahead for the ultimate exit to ensure that it is handled as effectively as possible and that the best value is received.

If you’re exiting your business and selling it to another party, you go through a due diligence review. This review essentially allows for the potential buyer to learn as much as they can about your business. The due diligence review is a very important part of selling your business for the best value, because an experienced buyer isn’t going to buy your business without knowing about it and what’s in the review can affect the value of your business. Some key elements of the due diligence review that business owners should start to consider now are:

• Key performance indicators and financial capital management – Do you operate on a budget, meet that budget, and review that budget on a monthly basis? If you can show this information to a buyer, the value of your business will increase. How much revenue your business brings in is important, but so if the form in which that revenue comes in. Having revenue set up as recurring payments on the 1^st of each month for that month’s service will be very attractive to potential buyers. This system is not feasible for every business type, but incorporating subscription-based products and services that produce recurring, predictable revenue will increase the value of your business.
• Processes and systems – Do you have well-documented processes and systems? Do you have regular, ongoing training and development for your employees? Do you evaluate your business’s performance on a monthly or quarterly basis? This information will allow a potential buyer to see whether your business is succeeding due to systems you have in place, which will make your business more attractive. If you don’t have your standard operating procedures written down, you should consider doing so before you plan to exit your business and make sure to be detailed. Also, if there are dips in your business’s growth patterns can you explain what caused them? Potential buyers want to see that a business has steady, predictable growth, rather than inconsistent swings.
• Leadership and team – Do you all share a mission, vision, and values? Does everyone know what the mission, vision, and values are? It is important that all members know these shared goals of the business, because during the due diligence review, everyone needs to speak with the same voice. Do you have a high retention rate or a high turnover rate? If your business has a high turnover rate, this is something that needs to be addressed before you try to sell, because that can be unattractive to potential buyers. Potential buyers want to see that your business has a good long-term management team in place so that things can continue to run smoothly after you leave.

This due diligence review requires a lot of time and attention and business owners don’t want to run the risk of finding adverse information about how their business runs during this review. Starting the process early allows business owners to work on any areas that may seem unattractive to potential buyers to make sure they are ultimately able to get the best value for their businesses.

Starting this due diligence review may seem like a daunting task. Seeking help from experienced professionals who can help guide you throughout the process will help lessen the burden and make the process run more smoothly. Our attorneys are specialized in business law and have experience working with business owners across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Call General Counsel PC at 703-556-0411 today to see how we can help you structure your business for a successful exit in the future.