Business Owner’s Exit Strategy That Makes "Cents"
by Steve Wright Ph.d
Let’s start by stating the obvious:
· Every business owner will at some point exit their business.
· Every business owner wants to see their business prosper after their departure.
· Every business owner should profit handsomely at the time of their exit for the years of their hard work and personal sacrifice.
· It is paramount and wise for business owners to plan their exit strategy.
Exit Strategy Analogy
Think about an airplane for a moment. If you are the business owner, you are the pilot.
Most business owners are great at “take offs.” They love to get something off the ground. Many entrepreneurs learn the management skill required to keep the plane in the air but very few entrepreneurs have ever considered what is required to land the plane.
Most businesses are akin to the plane ready for take-off and flight that has been equipped with zero preparations for landing. This is why many business owners divert off course during their last years.
No exit strategy always leads to disaster just like a plane without any landing gear!
Exit Strategy Options
There are many options for the business owner that wants to exit. Some options are more profitable than others but they require greater foresight and wisdom. Here are just a few options available to business owners considering the exit of their business.
1. Liquidation - This strategy basically says, “I’m closing the doors and I will sell all of the assets.” Unfortunately, this strategy is the only option left for some business owners because their business is in a steep decline. They have lost revenue, customers, goodwill, and their competition has taken their market share.
Liquidation is the least profitable option because the owner ends up selling their assets for pennies on the dollar. Liquidation always offers business owners the lowest ROI.
2. Family - Perhaps there is someone in the family that is willing to take over the business. Many business owners employee siblings or their children. The advantage offered here might be that someone already knows the business, knows the customers and they have already had years of on-the-job training.
Grooming a family member might offer the most seamless transition for a small business owner. The disadvantages may include infighting, stressful holidays and unmet expectations if the business fails after the current business owner exits. Most often the work required by the business owner to keep the business running smoothly is underappreciated.
3. Selling Your Business - Business owners have long known that this option offers the most profit for the business owner. A profitable business with good books and accurately priced for the market will attract buyers and sell quickly. Remember these three words: Profitable, Books & Pricing.
If you are going to sell your business you need to follow these steps to maximize your profit. There are thousands of buyers in the market that are tired of the hamster wheel of corporate America and they are looking for profitable businesses.
Having an understanding of the business buying process will help savvy business owners know what to expect and know how to market their business in the most favorable way.
3 Steps To Exit Your Business
1. Develop A Timeline - When an airplane is preparing to land, there is a lot of preparations made. Communication is an essential part of this prep work for the pilot carrying precious cargo.
If you haven’t sat down with a professional business broker, this is one of the first conversations that you will want to have. Exiting your business is a legal, accounting and nuanced procedure. To ease the stress of this process and maximize profits you will want to meet earlier rather than later with your business broker. How do you select a qualified business broker?
Developing a timeline will allow you to incorporate the factors that most impact the profitability of your business.
2. Valuation - How much is your business worth? How much is your home worth?
Home valuation - When a realtor or an appraiser values a house they look at sold homes in your geographic area. They do not look at active listings but rather sold homes to do a comparative market analysis.
Business valuations - Business valuations work much the same way by looking at sold businesses in a specific industry. Every business industry has different multiples that impact valuations. One of the primary factors of any business valuation is centered on the owner's benefit.
Read this article if you want to learn more about business valuations and how they are calculated.
3. Confidential Marketing - When you sell a house, you want everyone to know but the sale of your business is confidential and private. You need to know the process of selling your business and how confidentiality is protected.
The best exit strategy is the one that best suits the business owner and his or her business. Sitting down with a professional and looking at all of the options is always one of the best places to start.
You have worked hard, sacrificed and made many personal investments over the years. Give as much time and energy to the landing as you have the take-off and flight. Guiding your business to a successful landing will secure its future and your greatest profit during the exit!