When my phone rings, it’s often an owner who is thinking about selling his or her business. It’s usually a call from the car, on speaker phone, away from the office where the owner might be overheard. Most owners I talk to are in the very early stages of planning their exit. They’re not looking for representation, they’re looking for someone they can think out loud with, and who has answers to questions they may not have considered.

Here’s an example. Last week, I spoke with an owner whose son may be interested in taking over the family business. He wanted to know how long it would take to ensure the son was ready – and whether they should hire a GM to be a steady helmsman as the son grows into the role.

I asked him: “All things being equal – and with no bias toward the family member – who would be the best person to run this company and take it into the future other than you?” He was quiet for a moment. “Well, my son would respect our company heritage,” he said haltingly. “But an experienced owner would have the skills to keep it running profitably.”

I said, “You wouldn’t want your son to fail. That wouldn’t reflect well on the company’s heritage.”  He replied with: “I guess I always envisioned my son taking over. I’d like that best.”

For the next steps, I gave him three easy pieces of homework.

SUCCESSION PLANNING

Ask family members if they are still interested in taking over and when they envision that happening.  Things change quickly with young people, and a vague and idealistic conversation six months ago may have no bearing on today’s reality. If the family member says, “Yes,” make a concrete plan for training in operational skills and leadership – with a deadline.

I know from experience how young people want to please their parents, but they also don’t like to be pinned down. My older son told me he’d like to join my business but not for a few years so he can “enjoy life before he’s chained to a desk.” I recall having that same discussion with my dad the day he printed company business cards with my name on them.

TIMING

Talk to your tax advisor about which calendar years the business could be sold or should not be sold. Owners often forget about things like income averaging, depreciation, investment schedules, real estate penalties, alimony, children’s college expenses, and other factors that could cause a major tax hit in the year of the sale.

Owners should also look at their personal calendars. This year, our younger son graduated from college and is heading to grad school. This year would not have been a good one to sell a business.

FINANCIALS

Print out the last three years of company financials and tax returns, along with monthly income statements for the previous 13 months. If you lent the business money, I’d like to see that documentation.

I want to go over the areas that buyers (or, in this case, the owner’s son) would flag as problematic. I also want to note areas we can improve. Also, I want to examine the sales situation and plans for growth. Even if you plan to fund the sale of your business to family, get your financial house in order so your successor can hit the ground running.

The next steps of planning are essential. Before we start the internal improvement work or order a business valuation, we need a solid framework for the exit plan, and we need to narrow the options.

I love working with founders who bootstrapped their way to success. Entrepreneurs benefit from my approach to crafting a plan, building the business from the inside and setting the stage for the new owner.

If you are in the early stages of dreaming about what’s next for you, add some concrete elements to help with your decision-making – and do it soon. The older we get, the faster time flies. If you’d like to sell in the next few years, let’s get things down on paper and start looking at options pragmatically.  At the very least, consider building the company across all categories – operations, sales, marketing strategy, and leadership – between now and then. It never hurts to have a growth strategy, no matter who you sell to.

What if I don’t want my bookkeeper to know I’m selling my business – at least not yet
Entrepreneurs like to steer the ship, but one area they often defer to others is in the accounting department. Getting the financial information you need to make decisions about selling your business can alarm employees before you are ready to share that information.
Here are strategies for accessing financials without raising eyebrows:

Order your historical financials from your CPA. The reports on file with your CPA may need more documentation and data to allow you to complete a valuation, support your asking price, or complete the due diligence phase.

Get in the habit of having your bookkeeper print out your monthly financials. To avert suspicion, start asking for the complete set of financials every single month. You’ll want copies of your profit-and-loss and balance sheet, cash flow, accounts receivable (AR) aging, and other financial reports.

Capture final data, not just draft reports. Be sure to ask for the corrected and finalized income statement that shows where expenses were actually booked. We’ll use that in planning your growth strategy.

Ask for these reports to be on your desk by the 10th of the month after closing. If your accounting department has a hard time hitting that deadline, work with them to improve their workflows, and don’t be the reason they can’t close out the month.

Always check for embezzlement. Don’t let “tiny” or common errors slip through. Think it can’t happen to you? I encourage you to read up on it. Your local FBI, state bar association, and Investopedia all have reliable statistics and resources for privately owned businesses. What looks like a simple error may be a complex, ongoing scheme.

Don’t raise red flags. If you want to print reports from the bookkeeping program privately, be aware that your IT administrator or bookkeeper will probably receive an alert about your activity. Alerts prevent someone from accessing and perusing your financial records without authorization.

Once you can’t hide it any longer, be sure to have a confidential conversation with your bookkeeper. Doing so will hopefully stop the rumor mill, and you’ll be able to access information promptly. Once it’s time to order a valuation or go through due diligence, you’ll need your bookkeeper on your team. Yes, you probably have that information in your head, and your CPA has records – but the best and most current data, including comparatives, is in the bookkeeping system.

Second, the due diligence phase requires not only revealing your financials but also answering follow-up questions from buyers about why things are the way they are. Even if you have a CFO, the bookkeeper is the person who knows about payments, prepaids, receivables, collections, debt repayment, asset disposal, and specific transaction information.

The sooner you start your exit planning, the sooner you can start tracking your financials without alarming the accounting department. This is good business practice and will give you insight into making better decisions about selling your business.


Sandy Hubbard is a chief marketing advisor who helps position businesses strategically and powerfully. She advises specialty print manufacturers, converters, and finishers – helping them improve, grow, and position powerfully in a world of rising competition.  Her tenure in the industry has fostered business growth and success, allowing clients to make a difference in the world.