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It’s not difficult to evaluate your company’s profitability—it’s right there, in black and white, in the financial statements. This clarity is beneficial, because company profitability is arguably the single most critical area of business performance. As the saying goes, revenue is vanity but profits are reality. So when you one day want to exit, the more profitable your business, then likely the more valuable it will be at your exit.

But just because your company is profitable, does that mean it is exitable? Admittedly, I made up the word “exitable,” but for a good reason. An exitable company is one that is well prepared for the owner to exit and will fulfill the owner’s business and personal exit goals. Many companies are profitable but not exitable. If your company has any characteristics that limit its exitabilty, when you go to exit you will find the path more difficult than you expected, the company less valuable than you desired, or at worst your exit completely blocked. Moreover, if you only find out all these issues right when you want to exit, it will be too late to do anything about it.

“What will my company be worth at sale?” is perhaps one of the most common questions business owners ask when contemplating their exit. It’s not only owners who expect to sell their company to an outside buyer ask either. If you intend to sell your business to your employees, you still need to know the answer to this question. Even if you want to give your business to your kids, this question is essential to plan for taxes and other financial issues. Regardless of which of the four exit strategies you intend to implement, you need to know what your company is likely worth to an outside buyer.

That’s where the problem occurs. How do you know what a buyer might pay for your company when typically there are multiple potential buyers? You can and should research average company sale prices in your industry (usually expressed as a multiple of adjusted EBITDA (LINK) or in some cases revenue)—if you don’t know these benchmarks you are operating blindly. However, this information only tells you what other companies have been selling for. It does not specifically address what YOUR company may sell for. Even more frustratingly, you may have heard stories from other business owners (or your advisors) about how they got wildly different offers when their companies went up for sale. Why does that happen?

Different Buyers = Different Motives

Your company’s buy-sell agreement may be one of the most important legal documents in your life. It may not seem or feel that way most of the time, but if and when you need that agreement, it can either save you huge sums of money and incalculable stress and suffering, or it can cause you to lose huge sums of money and suffer incalculable stress. The outcome depends on whether or not your buy-sell agreement is well designed, or not. And, unfortunately many buy-sell agreements make one or more of several surprisingly common mistakes.

Quickly – What is a Buy-Sell Agreement

If you are like most business owners, you probably receive a steady flow of emails and phone calls seemingly offering to buy your company. As you know, many of these inquiries are junk, coming from somebody on a fishing expedition—and you don’t want to end up on that hook. But, how do you know if an inquiry is legitimate and you should consider replying? You could miss a golden opportunity. Then, if you should reply, what’s the right way to respond without appearing too eager, or without revealing sensitive information to a competitor? The wrong move here could ruin a potential deal, or put your company at risk, or waste much time.

You believe your business would grow faster, if you had more cash.

Or, perhaps you’d buy out that partner who’s not in sync with the company’s direction, if you had more cash.

Or, perhaps you’d take some cash home to diversify your wealth and sleep better at night—if only you had more cash.

Whatever your specific need, perhaps you’d do it—if you had more cash. That’s just the thing though. How do you get more cash to accomplish your business needs, without giving up too much in return, or taking on more risk than you should? Most business owners, at some point, will struggle with this question.