Private companies contemplating an exit in today's economy face several challenges. First, valuations are depressed because of a depressed public stock market. Tightness in the credit markets has prevented many financial buyers from competing with strategic acquirers for purchases of private businesses. Meanwhile, many strategic buyers, including pubic companies, are concerned about their own financing problems and are therefore not eager to take on new debt to purchase private businesses. And finally, the initial public offering market is virtually nonexistent.

Many private companies have therefore decided trying to exit in 2009 is a bad idea and are not taking any steps to prepare for a possible exit in 2010. However, this is exactly the wrong approach. It may take a year or more to actually implement an exit strategy that will maximize the valuation of the business in 2010. Accordingly, the time to prepare for an exit is now.

Take, for example, my experience with a private company that approached me in mid-1999 for an IPO exit. The company had a reputable proposed underwriter who was willing to take it public with a post-IPO valuation of well over $100 million. However, the company did not have audited financial statements that would satisfy Securities and Exchange Commission scrutiny, required a substantial corporate reorganization to make it a suitable IPO candidate, and lacked any equity incentive plans to motivate its key employees. It took almost nine months for the company to accomplish these tasks, which included upgrading its accounting staff. By the time the audit was finished and the corporate reorganization and equity incentive plans were in place, it was April 2000, and the IPO window had closed. Even if the window had stayed open, it would have taken the company nearly a year from the date IPO preparations began to the date closing proceeds from the IPO were received.

Keep in mind that even if a private company does not contemplate an IPO exit, filing a registration statement with the SEC is one of the best methods of marketing the company for a private sale.

Whatever the exit strategy, it is important to be ready to sell a private business when the window opens and valuations can be maximized. The window may only be open for short periods of time during which the highest price or valuation can be obtained for a private business. Even if the exit strategy is a sale and not an IPO, there is still a significant period of time needed to prepare the private company to maximize its valuation.

The following are some steps private companies considering an exit should take in 2009: