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Nov 20Mark Nuelle

Running for the Exits – Is the Tsunami Coming?

Nov 20Mark Nuelle
Exit Sign With Reflection

For the last several years, sales and purchases of businesses have been in sharp decline. The “Great Recession” has made many people hypersensitive to economic risk. The stock market decline and volatility has eroded wealth and confidence. Many aging baby-boomers who dreamed of getting out by now haven’t been able to exit their businesses. According to some market watchers, this may change sooner than many think.

Private equity firms are sitting on an estimated $500 billion in cash. In the last year, less than $50 billion of that has been spent. Investors who provide money to private equity funds do not expect their cash to remain idle over the longer term. Private equity firms know they must put this money to work if they want to continue in the business.

Recently, more and more downsized corporate executives and others have begun looking to start or buy a business. Many of these potential buyers are passionate about taking charge of their own lives and are actively searching for targets.

As the economy and debt markets slowly begin to improve, more and more private equity firms, companies, and individuals will be aggressively seeking good acquisition candidates. Unfortunately for all involved, good acquisition candidates are currently scarce.

If and when you want to sell your business, will you be considered a good acquisition candidate?

Good acquisition candidates generally have strong, sustainable business models that include steadily rising sales and income or at least the potential to rise.

financial statements  Most potential buyers will concentrate heavily on your financial statements, at least to start their due diligence. Are you comfortable your financial statements and key management reports are accurate and reflective of the substance of the business? If not, you need to act now to clean them up. When buyers come calling it’s too late. Nothing will cause a potential buyer to dig deeper in due diligence than if he/she finds problems in your financial statements or key management reports. If you do not have quantifiable, verifiable, and relevant data, you will not maximize your selling price and you may not even be able to sell your business.

Can your organization sustain an intense due diligence exercise? Are you sure you don’t have gaps in your internal controls, records, financial statements, and processes? Once due diligence starts, if the potential buyer catches wind of sloppy controls, statements, processes, and/or legal/organizational documentation, at a minimum they will use that to try to drive your price down – if not, kill the deal.

If your business is well documented and legitimately shows good financial performance, can that performance be replicated? If your company is a “one man band” and you want to retire when you sell, you must have a team that can carry on without you. Are you actively training and developing your staff today, for tomorrow?

For those of you who have no intention of selling, is it still not wise to make sure you have a “clean” organization to help you make better decisions?

Oh, and by the way, you can’t take your business with you! The natural order of things mandates we all exit someday. You can plan for it now or force your family, friends, or partners to make huge decisions under fire, at a bad time, and without adequate planning.

Do everyone a favor and take some time to get your organization in shape and consider how you’ll exit, not whether. You need to start now and have two to three years of a strong track record. You’ve worked hard in your business and you deserve to maximize your exit.

B2B CFO®

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