Key Things To Consider Before Exiting Your Business

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Exit Strategies are unavoidable. Every business owner exits every business at some point simply because we’re human and won’t be here forever. The question is: are you prepared? Are you proactive or reactive about this subject?

There are many different types of exits:

• Selling to a new owner
• Selling to employees
• Going public
• Passing down to a family member
• Merging with a competitor
• Merging with an industry related non-competitor
• Estate and will hand-downs or even just simply,
• Closing the doors and keeping your hard earned cash

These are all real and practical examples.

When an exit is completed successfully, your employees will feel respected, your debts will be paid off in full, your clients will miss you, your personal reputation will remain positive, and you’ll look back and feel good about the whole experience.

Done wrong, everything you built, the results of your blood, sweat and tears for many years can feel like a nightmare.

Here are some of the first key factors you need to consider when planning your exit strategy:

1. What are your personal goals and aspirations outside of the business?
2. Which exit option best suits those goals and aspirations?
3. Which option will bring you the best risk vs. reward ratio?

Profit isn’t the only thing that matters when exiting

Most people think, ‘how to make the most money?’ Smart people think, ‘what serves my greater life purpose best?’

No, I’m not making a vague or anti-profit statement here. I’m talking about being logical and approaching the subject of an exit objectively with your own personalized version of the big picture in mind.

Think about this for a moment. Why do we want money? Probably to increase the quality of our lives and of the lives of people we care about, is this fair to say? Let’s assume you answered ‘yes’. If the purpose of profits is to increase the quality of our lives, then I ask you, ‘is there an easier way to achieve that objective which maybe doesn’t require much money at all?’

If Exit Strategy ‘A’ makes 20% more money than Exit Strategy ‘B’, but increases your stress load by 80% when compared to Exit Strategy ‘B’, is Exit Strategy ‘A’ really going to bring you more profit overall? I suggest to you that the answer is ‘no’. Exit Strategy ‘B’ might, perhaps, be your wiser option.

Here’s a great 1-minute read on that puts this topic into perspective brilliantly:

The Fisherman and The Business Man By Paulo Coelho

What’s the point of owning and selling a business if, in the process or afterwards, you’ve done harm to your health? Or if it caused you to be an absentee parent? Or if your life was miserable in the process?

How much is your company worth?

Talk to ten business professionals and you might receive ten different answers. Every expert has their own opinion and sometimes those opinions can be completely contradictory.

I had an ‘expert’ once tell me my company was worth several times more than it really was. From a mathematician’s perspective, the logic was sound. But we live in the real world and you can’t just come up with a crazy formula and say that it makes sense just because you feel like it!

I suggest to you here quite simply: 

“Your business is worth as much as you’re able to sell it for.“

Which raises an interesting question:

How do you position and prepare your company in a way that someone will want to buy it for more money?

This is a BIG question which touches on almost every area of your company.

A great starting point is to consider the following points:

• How relient is your company on your own personal time? How much time per week do you spend working in your company? And how can you reduce this number?

• How long has your staff been with the company? How can you increase this number?

• How much repeat business do you have with your clients? Can you secure this revenue with long-term contracts?

• How much risk is there on any given day inside your company and within your industry in general? What measures can be implemented to decrease this risk?

• How relient is your company on specific team members? Are those team members happy and staying with the company long term, and how can you make them even happier?

• Is there anything in your company you can patent or register a valuable trademark on?

• How fast do you want to sell?

• How much net profit is your company producing, and are there minor tweaks you can make to increase this number?

Did you notice that net profit is at the bottom of this list? Too many people focus first on profits. Since profits are the first thing that people think about, all the other important subjects often become neglected and break a deal before pen hits paper.

Yes, profits are of primary importance when looking at buying or selling a company. But so is risk. A highly profitable company with very high risk is less attractive than a moderately profitable company with very low risk. And decreasing risk in your organisation leads us to talk about your business as a whole, not just one single bottom line on a financial statement.

The strength and self-sufficiency of your company are just as important as profits

I sold my last venture to someone not in the industry and who was moving into the city. That’s a very specific type of exit strategy, but it worked for me at the time.

Although there was an emphasis on profits, one of the more appealing aspects of my old company to the new buyer was the degree of reliability I had developed with long-term loyal clients.

Also, the long average time each key employee had been a part of the team. And the low amount of time I was personally spending inside the company. All these factors played together in making an overall attractive offer, which ultimately made my company more appealing to purchase than other options available in the market.

Lesson: Build up the strength and self-sufficiency of each of your departments to increase the valuation of your company.

Know your buyer

The more you know your buyer, the more you’ll be able to sell for, and the smoother the sales process will be.

When you sell your product or service to a client (or to the market in general), do you take the time to understand your clients wants and needs? Do you ask lots of questions to figure out how to position your offering in the most appealing way? Do you invest money in marketing yourself to appeal to their specific preferences?

Of course you do!

Selling your company to a new owner, or group of owners, is no different!

Here are some great questions to ask your prospective buyer while negotiating on price. If you’re selling through a broker or investment banker the same questions apply:

• How quickly are they looking to buy, and why?

• What sort of experience do they have in your industry or with business in general?

• In their own words, what are their top 3 motivations for buying into your organisation?

• Are they paying in cash or taking out loans to complete the purchase?

• Are they going to have to relocate or incur substantial travel expenses over the first year of acquisition?

There are many more useful questions to ask. What type of questions, when to ask them, and which questions to dive deeper on all really vary case by case. This is where it’s useful to have a strong broker or investment banker on your side helping to close on the deal.

IMPORTANT: Please don’t listen to anyone who tells you there’s a pre-made cookie cutter solution for exit strategies.

There isn’t!

An exit strategy needs to serve you, the unique business owner with a one-of-a-kind life. Nothing cookie–cutter about it!

“Pull together the right external advice and the right internal team create a pie that buyers want the biggest slice of.“

Your business is supposed to serve you, not the other way around. You started your business because you felt passionately about it. It’s important to ensure that passion remains until and DURING the time that you exit.

Let’s discover your ideal exit strategy in a 1-on-1 chat, book your call here.