EXIT STRATEGIES: Install a board of directors

In preparing your business for sale, you should give serious consideration to installing a board of directors as part of your sale preparation process.

You may feel you alone know enough to adequately manage the business and that the costs and time involved in supporting a board of directors is a waste. You would not be alone in that opinion as most small, medium and family business owners feel the same way. But running your business is not the same as positioning it for a sale.

In setting a business up for sale, we need to consider the viewpoint of the buyer and what the buyer would find attractive in the business. Our objective is to take away from the buyer any hesitations about the operation of the business as well as reducing the anticipated costs and delays of changing the ownership of the business.

The buyer will be concerned about inherent risks in the business. If the selling business has systems and processes for reporting to an independent board, it will indicate to the buyer that the owner is prepared to be accountable for performance and is prepared to review the business operations with external parties.

If the process is done properly, the buyer can be confident that the underlying systems and reporting processes will enable an easier transition to new ownership. If the board reporting pack includes operational as well as financial performance measures, the buyer will have more confidence in the quality of the business being acquired.

One of the biggest concerns of any buyer is the fear that the business rests on the personal knowledge and contacts of the owner. To the extent this exists, the buyer takes the risk that the goodwill and corporate intelligence will be lost with the departure of the owner.

To the extent the business has a knowledgeable and independent board of directors, the buyer can have some confidence that the underlying systems are in place to monitor business operations and that some of the corporate intelligence is shared among the board. Thus the buyer has the option of keeping some of the board members for a period of time after the purchase to ensure knowledge is transitioned to new management.

Perhaps the greatest benefit of having a board in place prior to the sale is that it indicates to the buyer that governance is seen to be important in the business. It also shows there are disciplines in place for longer term planning, risk assessment and accountability, all very good signs of a well run business.

This will all help to give comfort to the buyer and hopefully speed up the sale process as well as increase the sales value.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia. A series of free eBooks for entrepreneurs and angel and VC investors can be found at his site here.