How to Prepare Your Startup for an Exit (or Anything Else)

Nine out of ten startups will ultimately fail. Only 44 percent of small businesses make it to their fifth year, the timeframe when an acquisition becomes most likely. We’ve all heard these sobering statistics. In light of them, it makes sense that most businesses never create an official exit plan. Unfortunately, that oversight can hurt your business in both the short and long term.

There are a lot of reasons to have an exit plan for your business, even if you’re not considering a sale right now.

A strategic exit plan will cover a lot of the same areas as a contingency plan, making your business more resilient and protecting it from unforeseeable events. Smart founders should always have one. Click to Tweet.

No idea how to come up with an exit strategy for your business? No problem.

Follow these 8 simple tips to streamline your business operations and prepare your business for any event, whether it’s growth and scale, a sale, or anything in between.

1. Keep Business and Personal Records Separate

A lot of people use the same bank account, email address, and other resources for personal and work purposes, but as a business owner, you need better separation. At the very least, you need to make sure you have a separate bank account for your company and that you’re sending and receiving any business related emails using your business’s domain name, not a Gmail account.

You should also consider having a unique email account for distinct functions. For example, you could handle customer questions and communications with an email address like “support@your-domain.com,” while moving any discussions about business leads to “sales@your-domain.com.”

Keep your personal communications, including networking, in a personal account like first-name@your-domain.com. If you have part- or full-time employees, you’ll want to do this for them as well, and make sure they understand what types of communications should be sent from which account.

It’s also worth mentioning that your business website should be hosted on its own server with its own hosting account, with the cost of hosting applicable to your business only.

Why It Matters

All the time:

• Keeping records clearly segmented allows you to hand over access to a business account to a future partner or employee, with all the relevant information remaining in the account.
• By using different email boxes for different functions, important emails live with the job vs. with an individual employee. Even if you’re a one-man or one-woman shop right now, you may want to hire a customer support or sales person in the future. On the flip side, in the unfortunate event that you need to let an employee go, you can easily move the emails associated with that job to a new hire.
• It looks more professional to your customers and sales leads.

During a sale:
If you decide to sell your business, you’ll be required to transfer ownership of all “business records,” which includes financial records, as well as business email addresses and communications.

Separating personal accounts from business ones means you can hand over accounting records to show the company’s financial history without having to sort out personal expenses. In terms of email, simply delete any personal communications on your “first-name@your-domain.com” accounts and hand over the relevant emails for your support, sales, and other business functions.

2. Create Centralized Storage and Strong Business Passwords

Even lifestyle businesses with the simplest possible setup are going to have to manage a handful of passwords. At this point we all know passwords should be unique for each site or app so you don’t run the risk of compromising all of your accounts if one gets hacked.

But knowing something is different than actually doing it. Many small business owners opt for the convenience of making passwords easy to remember over making them strong and unique. This might be why cyber attacks are increasingly targeting small businesses.

Fortunately, there’s an app for that. At SureSwift, we use 1Password to manage passwords easily and securely across our portfolio, and it works extremely well for our remote team. Inside the tool you can create separate “vaults” for business and personal use, or make a vault for each product line you manage.

Why It Matters

All the time:

• Having a strong password management policy in place can protect your business from time-consuming and costly cyber attacks.
• Centralizing access to your accounts means that someone can step in and take care of daily operations if you’re unable to.
• This setup also allows you to grant access to relevant accounts to current and future employees or consultants in a couple clicks.
• If you have to let an employee go, it’s easy to keep things secure without having to change multiple passwords.

During a sale:
If and when the time comes to sell a business you can easily transfer data from your password vault to a new owner, instead of spending weeks chasing down all your logins. Should your significant other or family need to sell your business for any reason, not having access to various accounts can significantly reduce the sale price.

3. Track Your Income and Expenses (aka P&L) Monthly

There are plenty of accounting tools and apps out there to help you keep track of your revenue and expenses, and you can even DIY it with a good old Excel file or Google Docs sheet.

Whatever your preferred tool, you’ll want to track your revenue and expense categories on a monthly basis to give you a better understanding of your business finances.

Why It Matters

All the time:

• Creating and reviewing a monthly P&L statement can help you understand things like your profit margin, your biggest expense categories, shifts in revenue sources, ongoing vs. one-time costs, and opportunities to optimize outflow.
• Doing your accounting monthly is much more manageable than a once-a-year binge session right before tax time. Most accounting software will let you connect to your financial institutions (bank accounts, payment processors, etc.) and with a little setup you can have expenses automatically filed to the appropriate tax categories. I’ve been using GoDaddy Bookkeeping (formerly Outright) for my startups, and at $119 a year it’s a business expense that’s been well worth it.

During a sale:
Understanding your monthly P&L’s will help you position your profit margins and revenue potential to a prospective buyer. Having well organized financial records can also be a signal to them that your company is well managed, and can make your sale move faster.

4. Use a Revenue Analytics Software

Do you know what your major Key Performance Indicators (KPIs) are, and do you have an easy way to track them? New MRR, churn, LTV, and many more common KPIs are automatically calculated by revenue analytics products like ProfitWell (bonus: it’s free), and some of these metrics even come built in with subscription processing platforms, such as ChargeBee. We’ve also used and recommend BareMetrics, ChartMogul, and FirstOfficer.

Why It Matters

Data on KPIs is useful for you to run and grow your business, and transparency on your KPIs is very attractive to potential buyers, as it paints a good picture of the business’s performance, and helps predict future performance as well.

5. Hire Help For Critical, Time-Sensitive Work

For businesses making less than six figures annually it’s not uncommon for the founders to do a lot of work across a variety of functions themselves. For online businesses, it’s a smart move for founders to take care of customer service in the early years, regardless of revenue. Keeping tabs on customer happiness and ensuring a feedback loop feeds your product roadmap and can help fuel growth.

However, hiring a part-time freelancer to handle some of your critical operations, such as customer service or bug fixes, is a good move for a growing business because it creates a backup resource and makes your involvement in day-to-day operations less critical.

Not sure where to start looking for a freelancer? Ask for a recommendation from your connections on LinkedIn, or try a platform like UpWork.

Why It Matters

All the time:

• If you get sick, want to take a vacation, or need to step away from your business for awhile unexpectedly, you’ll know things can keep moving without you. This is especially important for businesses with only one or two founders.
• Once you delegate time-sensitive tasks, you may find you can actually add more value by focusing on bigger growth initiatives.

During a sale:
If you sell your business, chances are it’s because you want to move on to another project after a transition period vs. staying involved in the day-to-day operations. (In fact, pursuing another project is why I sold my business, HelpTeaching.com, to SureSwift back in 2016.)

Having an established team, even if it’s just one or two freelancers, who are familiar with the business and its most critical operations, can be very appealing to a potential buyer.

6. Hire a Remote Team

It’s nice to be able to meet and work with your team members in person, but your business location might come with serious drawbacks when it comes to hiring.

Why it Matters

All the time:

• When you look for a local hire you limit your potential talent pool significantly, and you may not get the best person for the job. A lot of companies, including SureSwift Capital, grow and succeed with fully remote teams, using tools like Google Suite, Slack, and Zoom, and you can too.
• If you’re located in an area where a high cost of living has driven wages up (Silicon Valley, New York City, or Boston, for example), hiring remote can also help you manage expenses.
• By creating a team working across different time zones, you can establish better coverage for 24/7 tasks like customer support without asking anyone to work odd hours.

During a sale:
Whoever acquires your business may not be located in the same location you are. Having a remote team that can work from anywhere means a sale won’t impact their ability to keep working in the business with the new owners, should they desire to keep them on.

7. Protect Your Intellectual Property

Did you know that engineers, developers, and programmers own the copyright to their code, just as artists own the copyright to their works? Since this is the case, you’ll want to take some steps to make sure your business owns the recipe to your “secret sauce.”

Make sure you have a contract for all freelancers and employees that transfers IP/copyright ownership back to the business for any work they do. Other things you might want to cover in an agreement are an “at-will” employment relationship, non-employee status, as well as non-compete and non-poaching clauses. You should always have your agreements and contracts created by an attorney, but you can use free legal templates from UpCounsel as a starting point.

Why It Matters

All the time:

• If anyone else touches your code, you don’t want them to be able to make an IP claim on it.
• If you have a great product name (and a domain to match) that’s descriptive and keyword rich, you should consider getting it trademarked to prevent competitors from using it. You can search for existing trademarks for free to help you decide if you should pursue this further, but consult an attorney on whether it makes sense for your business. Sometimes trademarks aren’t very enforceable and offer limited protection.

During a sale:
When a tech company is acquired, IP can have an impact on company valuation, so the extent to which you can show that your software is unique and that the IP is held by the business (and no one else) is important to a successful sale.

8. Collect Data for Analytics

If your website doesn’t have analytics installed to gather stats on your site visitors, or your email marketing doesn’t use tracking to help analyze performance, the opportunity to collect that data is lost forever.

Google Analytics is a free tool that has become the standard across a variety of web platforms and content management systems, so sign up for an account and install it on your website if you haven’t already.

In addition to using Google Analytics for basic data collection, consider setting up goals to help you track conversions (account creation, trials, etc), and use _utm parameters on the links in your marketing emails to help you identify visits to your website from your email campaigns.

Not your area of expertise? Hire a freelancer to help you set up goals and create a dashboard with KPIs you can easily check.

Why it Matters

All the time:
The conversion and engagement data you collect and analyze in the early stages of your product development can become a critical factor in your business’s success or failure.

If you’re not using data to make your business decisions, you’re just guessing. Click to Tweet.

During a sale:
Historical data can be critical to show audience growth patterns, conversion rates, and customer engagement, all of which can help turn a potential sale into a done deal. It will also help future partners or prospective buyers connect data to decisions you made in the past, and ones they’ll make in the future.

Questions Founders Should Ask Before an Exit

So there you have it: 8 simple tips you can use to make your operations stronger, starting today. The entrepreneur’s to-do list is never done, so go through and prioritize these items based on your specific business, and then schedule the time to make them happen. Your future self will thank you, whether or not you ever sell your business.