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By focusing on these three components, you will begin the process of managing your business in a manner that makes it most attractive to potential buyers. Few business owners are fortunate enough to sell their company when its value is at an all time high, and even fewer owners who have sold their company will ever know how or if they could have achieved a higher price.

Maximizing Shareholder Value: Sounds easy enough, but what is it that enables you to achieve maximum value and makes your business most attractive to prospective buyers? Many things can pique a buyer’s interest including strong management, quality products, and proven processes but earnings will always be the key. Historical, verifiable, and sustainable earnings that have increased year-over-year will be at the top of every buyer’s list. With that in mind, understanding how your business can achieve the highest possible earnings becomes the roadmap to your strategic planning process.

One of the best ways to measure how well your business is currently being managed is to compare it with other similar businesses that have recently sold. For example, when comparing two companies in your industry with similar revenue that have just sold, you might find that Company A sold for a multiple of 3.5 times earnings while Company B sold for a multiple of 4.9 times earnings. Further analysis of these two companies might uncover major differences in things like the ratio of earnings, salaries, or cost of goods sold in relation to revenue. Identifying your areas of strengths and weakness during this analysis will enable you to fine tune and improve your business, resulting in increased earnings and, ultimately, a higher price when selling your business.

Once again this sounds easy enough, but how does a business owner find information on similar businesses that have recently sold? The short answer is through a business valuation. A comprehensive business valuation, conducted annually and incorporated into your business plan, is the foundation for establishing achievable goals and measuring the progress in achieving those goals.

Succession Planning: This starts by answering some tough questions business owners would prefer to avoid. Questions like; why would I sell? Who would I sell to? When should I sell? How much do I need from the sale? What will I do when I’ve sold? Like all the other components of an exit strategy, succession planning is an evolution. It is adjusted and refined based on the outside forces that influence the timing of an exit such as economic climate, competitive landscape, industry cycle, and personal issues.

Estate Planning: Put quite simply, what steps do you need to take in order to minimize taxes now, as well as in the future and when a sale occurs? In addition, if you plan to retire after the sale, do you have sufficient funds to maintain your current lifestyle? As with maximizing shareholder value, succession and estate planning require on-going consultation with your advisors. Well informed business owners begin laying the foundation for a successful and profitable exit 3 to 5 years in advance of a transaction. In addition, planning for a transition period after the sale, may include a commitment from the seller of anywhere from 3 to 36 months.

With a timeline of 3 to 5 years preparing your business for sale, and a transition period of 3 to 36 months after the sale, it’s important not to forget the time required for the process of actually selling your business. In order to confidentially market your business, present it to buyers, and endure the due diligence process, it may take you well over a year to complete the sale.

Many times business owners decide to sell when their business has experienced a downturn. They quickly learn that the price they originally thought they could get when business was better just isn’t attainable. They decide to back away from a sale until the market conditions improve. The unfortunate reality is that the economy only plays a small part in the sale of a business. Well run businesses sell in good times or bad. A company that is managed with an eye toward the future stands out among the companies a buyer is reviewing for acquisition and, ultimately, receives the highest price with the most favorable terms.