What if I told you that it is not enough to build a business that is worth a fortune; that you actually have to develop an exit strategy, or a way to get the money back out of the business, to be successful. What if I went on to tell you that despite this, an alarming 72% of small business owners do not have an exit strategy at all?
This idea of not having an exit strategy is quite popular amongst small businesses owners and entrepreneurs, as many state that they “did not create a business to subsequently exit it.” However, the reality of it all is that every business owner is eventually going to have to exit their business at some point or another: it is naive to think differently. Here are a few steps which will help you to prepare for a successful exit.
Uncover your company’s purpose, what you want out of business, and why.
As an entrepreneur or business owner, you must constantly be asking yourself two questions; “what am I doing and why” and “what is the most valuable aspect of my company.” If you haven’t figured out the answer to these questions yet, it is going to be impossible to make a decision about your inevitable exit, as you must make choices regarding things like succession, legacy, employee and stakeholder concerns, family dynamics, sale price, liquidity, and other concerns. If you do not have clear personal and business values, these decisions will seem near impossible.
Build a company that is sellable.
Often times, business owners set up a revenue generating business that works for them, but that is structured in a way where the value of the business will not be able to be transferred to the new owner. One of the main culprits that causes a business to be “unsellable” is that a business owner themself is the business. This means that a business owner has created the business, runs the business, and has established all of the main connections that work to keep the business successful. However, the problem is that without the owner, the business will not be profitable. A company is easier to sell when its profitability is not dependent upon a single person, who is going to be leaving as the business is sold.
Do your due diligence on potential buyers.
After you have fully considered your personal and business objectives, values and priorities, it is time to decide upon a buyer. Considering these objectives, values, and priorities means that choosing the right buyer for you and your company is not going to be all about money. For example, if you want to protect your legacy, you might look towards a buyer who would agree to keep your name on the sign, maintain your company culture, and keep some of your key employees on board. This buyer might not be willing to pay as much as another option, but in choosing them you will have some sense that your company is in the right hands. The bottom line is that you should make sure you can trust who you are selling your business to.
Give yourself a generous amount of time to create a plan.
Ideally, an exit strategy should really be viewed as a phase of the business, not a sudden event. This is especially important if you are including your own employees in your succession plan. It is important to discuss the rationale behind your exit plan with key employees and get their feedback as well.
When you are creating an exit strategy, it is important not to do so alone. You will need advice from experts such as those with legal, accounting, insurance, and financial planning knowledge. In addition, it is also vital to seek out the help of those who have sold businesses in the past, who can give personal experience from their own exists.
Figure out what you are going to do when you do finally sell.
Often times, businesses give business owners a sense of purpose as it adds structure and meaning to their lives. When business owners sell and subsequently have no purpose, they begin to feel lost and confused. Many business owners decide to spend their newfound time helping other business owners by means of advising or consulting.