If you want to sell your business at an optimal price in the future, the time to prepare is today. Now is the time to plan your exit strategy.
Whether you already own a business, are buying one, or are launching a new venture, you need to spend as much time planning your exit strategy as you do on writing your own business and marketing plans. You need a well-thought-out, written exit plan that clearly spells out your goals and terms of departure if you want to achieve a high value price for your business when you sell.
You must accomplish several goals to implement that plan someday.
All of these goals are basic, so you should be working toward them every day—creating a recognizable brand, earning a reputation for quality, and impeccably maintaining your finances. Equally important is creating an environment where your employees want to stay. Happy, satisfied colleagues who share your vision of quality and who can run the business without you are people who can develop a strong, sustainable customer base for the company.
If you structure your business to run efficiently on the six Ps (people, process, product, proprietary, patrons, and profit), the exit strategy you plan today will pay off with a high selling price in the future.
Do You Want to Work in Your Business Forever?
That may seem like a strange question, especially if you just started your business. However, it’s critical to think far into the future and be realistic about how many years you might want to own your company.
Even if you spend your entire career owning the same company, you’ll eventually want to retire. If you want to make retirement a reality, you must develop an exit plan.
Maybe you’ve already realized that 10 or 15 years is as long as you want to be actively running your business. What happens then? Would you be interested in working in your organization if you no longer owned it?
Perhaps you would be fine no longer being the boss. Perhaps not.
These are things you need to mull over in order to make appropriate plans. As your life evolves and your business progresses, you should revisit these questions.
How to Develop Your Exit Plan
It’s helpful to find a mergers & acquisitions (M&A) advisor who can walk you through the steps of developing your plan.
Step 1. Determine the full value of your company in its current state. This will help you understand where you are starting from.
Step 2. Think about what you want your future to look like. You’ll need to summarize and prioritize your personal and business goals.
Step 3. Develop a plan that outlines what will happen when you sell your business. Your plan will describe in detail what the transition looks like and how long it will take. Your business plan helps you guide your business through its existence. Your exit plan helps you guide you through the process of selling and leaving your company.
Many business owners start their business with the goal of building it to a certain point, then selling it within a specified timeframe. They plan an exit strategy from the beginning. They build their business on the six Ps from that origin. This approach often results in a successful conclusion, and they achieve their desired sales price.
Having an exit plan in place means you’ve thought carefully about when and how you’ll exit your business. As such, you’ve considered each of these questions in detail:
- How much money do you want to make from the sale of your business?
- How long will your exit take, and what kind of transition period will there be?
- What will happen to your business after your exit? Will it continue under new ownership or be absorbed into another company?
CASE STUDY: Build Your Business to Achieve Your Goals
If your company’s success is entirely dependent on you, there is little or nothing to sell. If your future plans include selling your business at a price that will let you retire in comfort, then you must create a business that warrants your asking price by optimizing the six Ps.
A buyer wants to evaluate people, product, and process. Have you been trying to save money by doing everything yourself, which means not hiring more employees? This is a common mistake among small business owners.
We counseled a couple who worked 12-16 hours a day from their home with no other employees. We guided them to hire seven employees, borrow operating capital, and move into a larger space. They did, and within three months, orders increased by a factor of five.
Now the company is no longer dependent on the owners, and it generates revenue sufficient to warrant the sales price they require to retire. If they continue to operate on and improve the six Ps, they are on track to achieve their personal and business goals for retirement.
The Best Exit Plan Is to Plan Ahead
Structure and run your business to run efficiently on the six Ps: people, process, product, proprietary, patrons, and profit. That way, you can present a buyer with a solid customer base, a high-quality product, and a vibrant strategy for future growth.
You can accomplish all of this if you’re proactive and plan your exit strategy now.