Exit strategy is good business strategy. Everything you need to do to prepare your business for an exit at the highest possible price will simultaneously improve how your business performs and earns today. A great exit strategy also prepares you for the worst. If forced to exit unexpectedly, it helps if you are ready.
Here’s why you needed to start thinking about your exit strategy yesterday:
1. Your business probably carries more risk than you think
Many business owners have let risky business practices—such as outdated insurance policies, supplier concentration, or cash accounting—go on too long because they haven’t caused problems yet.
A great exit plan includes finding and addressing these risks in a business, which can ultimately lead to higher valuations.
2. Your business likely needs to be more valuable than it currently is
Great exit strategies include building long-term and massive additional value in the business. Unfortunately, two years usually isn’t enough time to build the necessary value.
Sophisticated buyers don’t believe in short-term value improvements. You’ll need a solid track record, usually in the form of trailing 12 months (TTM), to demonstrate that your work is sustainable. That takes time.
3. You can involve your employees without them fearing they’ll lose their jobs
Most business owners don’t want their employees to know they are considering selling the business. However, when you approach an exit as a business strategy to build value in the business, involving your team is natural. A more valuable business is one in which most people want to work.
4. You’re probably not ready for the unthinkable
Five things can dramatically change your business:
- Death.
- Disability.
- Divorce.
- Distress.
- Disagreement.
Every business should have a plan for dealing with these five events.
5. You may not have your most important priorities aligned
If your business, personal, and financial goals aren’t aligned, you may experience internal tension and possibly friction.
A unified strategy harmonizes these three priorities, setting a clear path to your objectives.
6. You probably don’t realize how many options you have
Many owners default to thinking a sale to an outsider is the only exit strategy. Options like family transfers, ESOPs, or management buyouts can also fulfill your goals, often with added benefits.
7. You won’t be able to sell easily and quickly the moment you’re ready
If you wait until you’re ready to retire to plan your exit, you’ll likely rush and settle for less. Proper preparation requires time to position your business attractively in the market.
If you start preparing less than two years before the planned exit, you can do little to change the outcome.
8. You probably don’t know what buyers really want
Every business buyer has a different motivation. Some are looking for earnings, others for recurring revenue, and still others for market share or expanded markets.
No one really knows what a prospective buyer might be looking to purchase. However, if your exit process is well designed, you’ll turn up prospective buyers you never knew existed, expanding your options.
9. You probably have an unrealistic idea of how many buyers are interested in your business
“People call me all the time.”
Guess what?
They are calling everyone!
Private equity firms can call every business in the U.S. with revenue under $100 million in about 14 days.
You’re just another number. Getting those calls doesn’t mean your business stands out or is more valuable than anyone else’s.
10. You probably need a lot more time than you think to build your business’ value
Everyone wants a certain lifestyle when they retire.
If you don’t know how much money you need for that lifestyle, you won’t know how much work is required to increase your business’s value and the likelihood of a sale.
There’s a big difference between two years of work and 10.
11. You’re unlikely to prepare to sell without support
I talk to many owners who believe they will spend time working on the right stuff and their business will be in that ideal state to sell in three to five years.
In reality, most business owners are lost in day-to-day responsibilities. They won’t spend enough time planning for an exit — unless they have an exit planner helping them take the necessary steps to prepare.
Learn how to get ahead of these problems.
Get started on learning how to get ahead of these problems at the Business Transitions Summit.
