At Contango Investments, our team of seasoned business brokers and M&A intermediaries understands that successfully exiting a business requires more than a simple sale announcement. A well-crafted exit strategy ensures your business is positioned to attract the right buyers and achieve maximum value, whether you plan to transition ownership to a family member, engage a strategic buyer, or list your business on the open market.
Our expertise emphasizes that viewing your business through a buyer’s lens is critical. While your business has thrived under your leadership, buyers will focus on its sustainability, operational independence, and market competitiveness without your direct involvement.
What Buyers Want to See
Buyers look for businesses with steady revenue streams, consistent cash flow, and scalable systems. They are less interested in operations heavily reliant on the current owner and more focused on the presence of a competent management team and documented processes. Additionally, buyers will evaluate your products or services’ position in the market and their ability to outshine competitors.
Start Early to Maximize Value
At Contango Investments, we recommend initiating your exit strategy at least three years before your planned transition. This timeframe allows you to:
- Align with Favorable Market Conditions: Timing matters. A strong acquisitions market can significantly increase the sale price.
- Optimize Financials: Implement changes to boost revenue and profitability or reduce expenses.
- Organize Records: Ensure financial documentation is clean, accurate, and comprehensive.
- Prepare Your Team: Train employees to manage day-to-day operations independently.
- Document Systems: Create detailed manuals of your business processes to demonstrate operational clarity and efficiency.
Market timing is key. Selling during favorable economic cycles can maximize your return, while poor market conditions might suggest waiting for a better opportunity.
Tailor Your Exit Plan to Your Goals
Every business owner’s exit plan is unique. Your strategy should reflect your specific objectives:
- Retirement or Lifestyle Changes
Owners looking to retire or fund a new chapter in life must focus on timing the sale to maximize financial returns. - Shifting Interests
If your passion for the business has waned, selling while the company is still thriving is crucial to capturing its full value. - Adapting to Market Challenges
Businesses facing declining sales due to shifting trends or competition may require time to innovate or restructure before going to market.
Understanding Your Business’s Valuation
Valuation is a cornerstone of exit planning. Contango Investments specializes in helping owners accurately assess their business value using industry-standard metrics like EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) or SDE (Seller’s Discretionary Earnings). For small businesses, SDE is often the most relevant metric.
The valuation process involves applying a multiple to your earnings, which varies by industry, company size, and other factors. If your valuation doesn’t meet your expectations, our team can guide you in boosting profitability or reducing expenses to enhance your business’s worth.
Strengthen Sales and Expense Strategies
- Diversify Revenue Streams
A diverse client base reduces risk and reassures buyers. We encourage strategies like subscription models or recurring revenue streams to demonstrate reliability. - Optimize Spending
Buyers want to see well-managed expenses that drive growth. By focusing on ROI, you can highlight the strategic value of your spending.
Prepare Your Financials
Potential buyers and lenders will scrutinize your financials, so it’s critical to present clear, consistent records. Our M&A experts advise the following steps:
- Transition to Accrual Accounting: Align revenues with associated expenses for greater transparency.
- Recast Financial Statements to SDE: Provide buyers with a clear view of discretionary earnings.
- Ensure P&L and Tax Consistency: Discrepancies between reports raise red flags and can delay deals.
- Conduct a Professional Audit: A CPA audit adds credibility and boosts buyer confidence in your numbers.
Build a Resilient Management Team
One of the most significant concerns buyers face is whether a business can thrive without its current owner. Contango Investments advises identifying key team members to take over operations and implementing training programs to prepare them for leadership roles. Creating comprehensive manuals for your processes ensures continuity and reassures buyers of the business’s stability.
Leverage Expert Knowledge
At Contango Investments, we believe knowledge is power. While you don’t need to be an expert in M&A, understanding the market and the sales process will empower you to make informed decisions. Our team is here to guide you every step of the way, providing resources, insights, and alerts on market trends to ensure your exit strategy aligns with your goals.
Let our experience and dedication help you achieve a seamless transition and secure the value your hard work deserves.