An entrepreneur has countless things to consider, and an eventual exit plan may not be an immediate top-of-mind concern. However, an exit strategy should in fact be part of the overall picture that you as a small-business owner are painting for your enterprise. It may not be a near-term concern, and it could appear to be rather tedious work on the front end, but it is still a meaningful process for entrepreneurs as they establish and carry out the strategic direction for their businesses.
A potential acquisition target must be ready to express the company’s value to a potential buyer or investor. A measure of business readiness should be established so that your company can be in the best position possible for capitalizing the worth of the business.
Here are some practical ways to help you and your business prepare for an exit:
Get ready earlier than later
It would be less than ideal to find yourself ill-equipped at a time when you would like to or are in a rush to exit. Start taking on the small steps now (explained further below), so that the process toward the finish line could be more streamlined. Meanwhile, these small steps could also help make the business stronger as it is today.
Be more consistent and scrutinizing with reporting
Catch problem areas before they become problems. The more often the reporting, the better. In this endeavor, regular financial audits will be helpful, even if it’s outside of the context of an acquisition. Private companies by nature fall under less scrutiny from a reporting standpoint. Utilizing third-party audits can help ensure best practices and bring the standards in line with those of a potential buyer.
Know your company’s metrics
Be ready with current and historic measures of key benchmarks relevant to your industry. Think about what metrics you might be missing: Customer acquisition costs? Customer lifetime value? (See our post about the importance of recognizing the value of a customer relationship.)
Know where your business stands
With respect to being an attractive target, or being “fundable.” An analysis such as this, run by Pepperdine University’s Graziadio Business School, is available to early-stage companies to evaluate where a business stands across a dozen assessment areas. This study is designed to offer a data-based perspective into the factors that contribute to a startup’s success.
Gather intelligence about the big players in your industry
In other words, study the potential acquirers. Look at their standard contractual terms and conditions, customer agreements, and pricing models. Provided that they are solid, proven models, think about how you can mold your business to them. From a buyer’s perspective, it would be fair to assume that the potential for a deal is much more plausible when the target’s terms and model are in alignment with its own.
Get Your (Financial) House in Order
While there may not be a deal in the near term, it is helpful nonetheless to keep a secure, centralized place—a cloud-based server, a physical box or a dashboard of sorts—where all important documents and vital records live.
Have the Right People Around
Experts who contribute to advising and guiding the business along—investment bankers, attorneys, tax advisers, etc.—are a crucial part of preparing for a successful acquisition. Nurture those relationships so they are part of the process from inception to delivery, as they can speak to the entirety of the business.
Running a small business has its various challenges, and thinking in advance of a potential exit could be easy to brush aside. You never quite know when an offer might land on your doorstep. A deal process involves complex elements, including differences of ideas and dissonance between parties, with ample potential for things to fall through. Yet, it’s reasonable to believe that, as in any relationship or negotiation, fewer differences are easier to overcome; one too many could be a deal breaker. So perhaps it’s worth giving some thought to these small practices of readiness now, which can make all the difference to closing a deal in the future.