Having a solid bookkeeping system in place is the key to growing a small business and implementing an exit plan. A great idea will get you going, but it won't necessarily lead to huge growth and an eventual exit.
Growing a business takes a great idea, a strong strategic plan, and a way to measure your progress (i.e., bookkeeping). Seasoned consultants will often tell you to start with the end in mind; they are right. A good strategic plan starts with an end goal, which for many business owners is an exit. I will explain how a solid bookkeeping system will allow you to grow your business to a new level and execute an exit plan.
Growing Your Small Business Through Bookkeeping
If you read my blog, you know that I often refer to using your bookkeeping as a growth tool. The truth is that very few people use their bookkeeping as a tool because they don't see the value in it.
The first step is having an updated bookkeeping system, as it is hard to find value in your books if they are outdated. I update QuickBooks on a daily basis so that we always have our key metrics available whenever we need them.
Then we use an updated bookkeeping system to forecast the financial future of our business. An accurate forecast takes away any gut feelings we have about the future. We no longer worry about whether we will stay profitable or if we can afford to hire someone; we validate it.
The forecast also allows us to get a glimpse into the future of our business. We use our updated bookkeeping system and financial forecast to make smart business decisions and critical pivots if necessary.
If you are going to really grow your business, you will most likely need to raise money at some point. If you are bootstrapping your business, then this doesn't apply, but you are going to grow at a much slower rate.
Whether you are raising money from an investor or looking for a traditional bank loan, there is only one certainty: nobody is giving you any money without seeing solid financial statements.
One of our more common types of call is from small business owners who recently approached their bank for a loan. It goes something like this: "My bank told me I need a current year-to-date profit and loss statement and a balance sheet. My bookkeeping is so far behind and my most recent tax filing is too old for the bank." No shocker there, right? But for many small business owners, this is the wake-up call that leads them to hiring a bookkeeping service.
Exiting Your Small Business
A common question that small business owners have is, "When should I start the exit planning process?" If you asked me that question, I would say right from the very beginning. A good business plan starts with the end in mind. Another thing to understand is that your exit plan is an ongoing process. Things will change as time goes by; you should revisit your exit plan often (at least once a year) and update it as necessary.
When you think about exiting a business, don't immediately jump to the conclusion that you need to sell it. Some common exit strategies include: taking on an equity partner, going through an IPO, gifting the business to someone, or letting the business run itself. I want to walk through two the of the more common exit strategies for small businesses.
Acquisition Or Equity Partner?
Most small business owners go one of two ways when implementing an exit plan: they either sell the business or bring on an equity partner. If you choose one of these routes, neither will happen without a solid bookkeeping system in place.
First of all, if you can't produce accurate financial statements, it will be difficult for anybody to put a value on the business and make you either a buyout offer or equity partner offer. Second, not having an up-to-date bookkeeping system makes you look like an amateur. If your bookkeeping system is behind by several months, I would be worried that you will not get as high of a valuation for your business as you could if you were dialed in financially.
When you plan to exit your business, make sure that your bookkeeping is accurate and up-to-date to maximize your payout.
Is your bookkeeping system solid?