Having an exit strategy simply means having a plan to leave your business, one day. Whether you plan to sell and sail off into the sunset, or pass on to a family member, it’s worth planning well in advance – as well as thinking about continuity if you exit sooner than you expect.
Do you need an exit strategy?
Whether you intend to leave your business in one, five, or twenty years, you’d be wise to make a plan now. It takes years, not months, to prepare a business for a new owner.
A business exit strategy will help you get ready. And it gives you freedom. If you’re ready to sell, you can do it at any time. That gives you options.
Top tips for planning an exit strategy
1. Plan for your most likely buyer
If you’re selling to family, be transparent and open – that way you don’t cause family tensions that can rumble on for years. If you’re selling to staff, expect staged payments. with a deposit and payments as agreed from future business income. If you sell to the highest bidder, make sure your accounting and business records are in excellent order.
2. Decide how soon you want to exit
Some buyers, such as family or staff, won’t have the cash to buy you out straight away. You might have to stay involved, as a consultant or employee for some time before you fully leave. If you want a clean break, then the open market, using a Business Seller will suit you best.
3. Get your books in order
Buyers will ask to see at least two years worth of clean and dependable financial records. If your bookkeeping isn’t up to scratch then get busy fixing the problems, so any potential buyer can understand the financials at a glance – or at least with the help of their accountant. If you can improve profitability then set about doing this as soon as you can – think of it as tidying up and getting the business books in the best possible state for inspection.
4. Make yourself less significant
A business that can operate without you is what buyers want. If you are essential to the business offering then no one is going to buy the company without you too. No one’s going to buy your business off you if it can’t survive without you. If you have staff, give them the training and power they need to succeed. By cutting back on your availability to customers and delegating more, you will be on the road to creating your exit strategy.
5. Get organised and systems in place
Ensure you have formal processes all documented – so someone taking over can see how the operation runs, in relation to the financial figures – basically, if all other things are equal, and the new owner follows your system they can expect the same results. This also allows a buyer to see how they might cut costs or merge your business into an existing one.
6. Increase the value of your business
Know the strengths in your business and see if you can maximize them in order to add value to the sale price, and deal with any weaknesses. Your accountant can help with a basic SWOT analysis and help you pull out where the value lies.
7. Get a guideline valuation
You won’t know what you’ll get for your business until the day it’s sold, but you can get a rough estimate. To get a professional opinion ask your accountant to introduce you to a local business broker or most accountants can give you a ball park guide. Once you have a realistic idea of what you could sell for it will help you plan your exit – you may need to adjust your timings or plan improvements.
8. Have a sales pitch
Everyone loves a story – make sure you can tell your business story so that a buyer is excited about where they could take the business. Gather your facts and figures to make sure the financials match the story. If you are pro actively planning your Exit Strategy think about business PR, the website and your marketing strategy – so all of these things can be of value to the next owner.
We thank our friends @Xero for the inspiration for this post and if you want to plan your Exit Strategy call us today.