By Bruce Hakutizwi
As entrepreneurs, the companies we start and grow become part of us. Business success is felt as a personal victory, and downturns in the economy can destroy our entire outlook if we let it. It’s understandable, then, that some business owners mistakenly view the possibility of selling their business as an admission of defeat or of personal failure. But nothing could be further from the truth.
Granted, being forced to sell your business to avert financial tragedy is never a good thing. But making the thoughtful and strategic decision to sell your business can be one of the greatest signs of business success you can hope for. The difference, of course, is being in control of the situation and handling it strategically – as you do every other successful business decision you make as an entrepreneur. If you’re choosing to sell your business and you’re in control of the situation, it can mean great personal fulfillment and financial success as well.
Developing an Exit Strategy
Really, every business owner should go into business with at least some idea of how they’re going to remove themselves eventually. An exit strategy is the business owner’s plan for either by passing the company on to family or partners (known as succession planning) or through the sale of the business to a partner, a competitor, or an unknown prospective buyer. Moving ahead with starting and running a business with no thought to an exit strategy dooms the business owner to working for the rest of his life.
Of course, if you truly love what you do, there could be worse ways to spend your days. But failing to develop an exit strategy still leaves a lot of important matters unresolved and can cause your company to move along aimlessly when it really needs strong direction and clear goals.
A clear exit strategy, on the other hand, provides an estimated timeline, important milestones the company is striving to reach, and a clear definition of what you expect to get out of the eventual sale of your business, all of which help keep your company moving forward strategically.
An Example of an Exit Strategy
Let’s assume you’re the proud owner of a popular local fast casual restaurant. You’ve run the eatery for 10 years and you’re hoping to retire within the next five years to enjoy time with your family and get in some more fly fishing. In this circumstance, your exit strategy would consist of:
- Determining how much you would need to earn from the sale to make your retirement plans successful
- Obtaining a realistic valuation of your restaurant from experienced third-party experts who are not emotionally invested in the business
- Milestones the restaurant would need to reach in areas like profit margin, annual revenue, and efficiency in order to effectively reach or exceed the value you need from the sale within five years
- A rough timeline to help you and your employees reach those milestones in a timely manner
Going forward, this strategy can help guide your business decisions, hiring, purchasing, and other aspects of running the restaurant with a goal of optimizing your chances of selling it for the right price just in time for you to enjoy your retirement on schedule. Learn about how to create and optimize an exit strategy for any kind of business.
Preparing Your Business for Sale
As you follow the outline of your exit strategy, you’ll be able to determine where the business stands in terms of reaching the necessary milestones on schedule. As your timeline begins drawing to a close, if you’re planning to pass the business along to your children, you’ll need to begin grooming your replacement to handle your responsibilities as business owner and guide them in planning for the future of the company.
If you’re planning to sell, there are some important actions you need to take as the exit strategy timeline winds down to be ensure you’re able to get the most out of it when it comes time to sign on the dotted line:
Step 1: Make sure all business records are in order
A buyer isn’t going to want to hear your anecdotes of how you managed to pull the company through difficult times. They’re going to want to see hard facts in black and white. Their chief concern is going to be verifying that the business is profitable and running smoothly. To do so, they’ll need to thoroughly review your legal, business, and financial records. Make sure that’s an easy and pleasant task.
Step 2: Have your business professionally valued
As the owner, you know your business best, but when it comes to placing a realistic financial value on it, you’re letting emotions get in the way. Instead, put together a team of professionals who are experienced in business valuation in your area: a business broker, attorney, accountant, and commercial real estate professional can all be helpful.
Step 3: Keep the premises clean and well-maintained
If you’ve ever shopped for a home, you understand the importance of that first impression a home’s “curbside appeal” can have on your eventual decision to buy. Likewise, the look and feel of your business locations will have a huge impact on your prospective buyers. A dirty or unkempt appearance can scare away a buyer before they even have a chance to find out how successful your business is.
Step 4: Keep your employees informed
A well organized, hard working staff can be a great help in convincing a buyer the business is worth purchasing. On the other hand, a staff that is unaware the business is for sale, or feel like their jobs could disappear any moment can give a terrible impression to prospective buyers, therefore harming the chances of a sale.
Step 5: Pull yourself out of daily operations
It’s important that prospective buyers can easily see themselves stepping into your role without the business falling apart. If you’re physically there, managing everything and running the business personally 16 hours a day, it may appear that the business can only be successfully run with you as the owner. No one is likely to risk buying a business that appears destined to fail. Setting up business systems and training qualified replacements will allow you to effectively step aside without jeopardizing the company’s success.
An Example of Business Sale Preparation
Imagine over 4four years have passed since you documented your exit strategy and it’s nearly time to put your restaurant up for sale. Looking ahead, you can see that the restaurant is likely to reach the financial goals you set for it in time for you to retire on schedule. Based on the feedback of your team of experts, the market value of your business should be enough to allow you to sell and fund your retirement effectively. Now’s the time to follow the steps above to make sure you can locate and court the right buyer in time to sell the restaurant successfully.
So, you have your business records, legal documentation, and financial paperwork collected and organized by your CPA. You notify your staff that you’re going to be listing the restaurant for sale and you outline what you need them to do to support your efforts. You also discuss turning over day-to-day management of the restaurant to your most reliable shift supervisor and start grooming her for the job.
Together, the two of you put together a list of projects that will help spruce up the inside and outside of the restaurant, including a new paint job and the installation of an upgraded grill in the kitchen. Finally, you list your restaurant for sale at a reasonable – but effectively profitable – price and begin welcoming interested parties to tour the premises and start entertaining offers.
As this example illustrates, selling your business in a planned, strategic way will never feel like defeat. In fact, it’s a natural progression in the life of a successful business, and part of the entrepreneurial adventure that all entrepreneur should be able to look forward to.