Very few owners decide on an exit strategy for their business. As a result, very few of them sell. According to the International Business Brokers Association (IBBA), up to 90% of businesses never sell at all.
Even the vast majority of businesses that brokers spend time to package and market DON’T SELL. All that time, money, and effort a business owner puts into his/her business disappears in a cloud of smoke. Why?
We could give you a whole laundry list of reasons, but it really amounts to one thing: the business, at face value, isn’t worth anything!
Therefore, if you as an owner don’t want to be a part of these statistics, you need a plan to exit with some return on that time and money investment. And you need to start creating that plan NOW.
Why Create An Exit Strategy Now?
1. Decision-making: Every decision you make as an owner supports your exit strategy. Remember how we’ve talked the last few weeks about the importance of systems – every system should operate in a way that smoothens your exit.
2. Valuation: Your presence as an owner should not define the value of the business. Consider this: You’ve established and led your company to its success. What happens if you leave all of a sudden? How much value will your company lose along with you? By starting your planning well in advance, you focus immediately on the desirability of your company, even without you present.
3. Less Work Later: Nobody wants to sell their company just to discover that they still have to work. Maybe you’ll want to keep working, but the goal should be to build up enough financial security so that you can freely choose what you want to do after you retire.
All of these points boil down to one thing: freedom. Think through what you could DO when if you sold your business for 5, 10, or 20 times earnings. This thought process alone should spur you to start exit planning.
What Options Do I Have?
Liquidate: Close the business and sell the assets as soon as you can. We think of this as a last resort method for a business, as you only make money off the assets you can sell. You lose the valuable items like client lists or business relationships. However, some owners build up a lifestyle business and feel perfectly content slowly liquidating over time.
Sell on the Market: Entrepreneurs, business buyers (and of course, your customers and team) want to see a business that thrives without its owner present. Buyers buy because the business has great existing systems, sales streams, cash flow, established client bases, and brand reputation. High-level – if you want to increase the asset value of your business, work on all of this, and create goals that boost these components.
Sell/Pass on to Someone Close: This option quells many of the concerns that come with liquidating or selling on the market. However it creates many headaches that you’ll want to deal with early. Will you be tempted to sell at a discount? Will this stress close relationships? I’m beating a dead horse, but you need to plan early if you want to take this route. Don’t try and hide elephants in the room.
Where Should I Start?
The vast majority of business owners build, buy, or inherit a business and immediately get sucked in. The thought of an exit strategy doesn’t even cross their mind. The entrepreneur on the other hand goes into a new venture with the exit plan ready to go immediately.
If you find yourself in the start-up/early stage, have a basic plan written down on paper that aligns with your vision and mission for the company. Build this basic plan as you grow your business in terms of cash flow, customers, and team (which are probably your main focuses at the time).
If your business has operated for a while at the “mastery level”, start seriously considering your exit options, even if you don’t foresee an exit happening for 5, 10, 20, or even 40 years. Approach your stakeholders, team-members, and customers. Your operation “sold-out” plan should make sense to them, even if they don’t know all of the details.
The best exit strategy meets YOUR goals and expectations as an owner – not anyone else’s. Focus on the lifestyle you want to live and the legacy you want to leave behind. But most importantly, get your entire organization aligned with your exit. That way, you can move as close to freedom as possible as soon as possible.
No matter where you find yourself in business, the thought of all of this will overwhelm you – perhaps to the point that you ignore it. We urge you to make the choice to start now. And if you still don’t know exactly where to start, talk with one of our coaches who have guided business owners to amazing, well-planned exits of their own. Reach out or take a look at our upcoming events.