Describe the goals of financial management in preparation for a business exit.

Question

What will be an ideal response?

Answer 1

Successfully leaving a business requires maximizing the value of the business for successors. The goals of financial management in preparation for exiting the business depend, in part, on the nature of the exit that is planned.
If the plan is to transfer the business to family members, then one will want to ensure that the business is in sound financial condition. The entrepreneur should be working to minimize debt and to increase asset value. It is essential that they establish internal controls over assets by establishing policies and procedures that are clearly stated and understood by everyone involved in management.
If the entrepreneur plans to sell the business, their goals should be to optimize capital structure for profits.
Investors usually will not pay to "buy" cash in a business. Therefore, it is important to remove all surplus cash and tighten the cash-to-cash cycle to the shortest time possible. The condition and age of assets will greatly affect the final selling price, so now is the time to ensure that all equipment is in good working order, that the facilities are clean and organized, and that accounts receivable and accounts payable are up to date.
Termination of a business is also very common. Many small businesses are extensions of the owner. For example, CPA firms, beauty salons, real estate brokerages, indeed any business that provides personal services, often depend solely on the reputation and personality of the owner. In reality, there is no business to sell. In cases such as these, exit usually involves finishing all outstanding projects, collecting all money due, disposing of all business assets, and finally paying off any outstanding debt. Thus, the goals of financial management are to recover all asset value possible, cover any indebtedness, and use the remainder for personal purposes.