Planning Your Exit Strategy and Selling Your Business
The best time to begin considering the exit strategy for your business is when you start your business. Sounds crazy right! Let’s think about it. You have started your business but you know you can’t work forever, so establishing your long-term goal and objectives helps in understanding how to grow your business and to accomplish a successful exit strategy.
So, where to start? Consider the potential options that align with your goals. You might sell your business to a competitor, leave it to your children or other family members, sell it to employees, or sell shares to a managing partner. What are the key factors in the determining which of these options best meets your long-term plans, let’s consider your motivation? Are you wanting to build family fortune you could incorporate any of the above-mentioned exit strategies? If your goal it to Command the Market share, you would likely take on a managing Partner, if Retirement is your goal selling to a competitor might be the best options.
When beginning your initial exit strategy planning, you will need to have a team of experts who can guide you and provide professional advice along your journey. Sounds expenses right! it is not. You will need a CPA or bookkeeper which can keep you abreast of your Profit and Loss statements each month. Understanding your financial status is a must in growing your business. Retaining a financial planner who fully understand your end goals and exit strategy will help you to understand the value of your company and advise you on the growth trends needed to accomplish this goal. Many Banks and financial institutions provide this service free to its customers. Engaging a Score Mentor can also be a valuable tool as many volunteers have successfully sold their business and are a great resource for free advice and guidance.
The next step in pre-planning is to set up your company in an organized manner. Most purchasers will want to perform some level of due diligence. This typically calls for a review of financial and operational records for the previous 3-years. Having them organized by month will make the due diligence a much smoother process.
When the time comes, you have decided to sell, you have a purchaser wanting to buy, the negotiations begin. It is time to engage legal counsel. Adding this professional to your team will ensure that the process meets all legal requirements and that your best interest is at the forefront of all decision making. Don’t sign anything before having it reviewed by your attorney.
As an entrepreneur who has birthed a successful company, you will need to take the emotions out of the process. The purchaser may question the platform by which you operated and may offer you a low-ball price. This is business and they are attempting to make the best deal for their objectives. DON’T BE INSULTED! Educate yourself with a full understanding of the value of your company. Do your research to determine what EBITDA MULTIPLE companies in your industry have previously sold for. Once you have knowledge of the average multiple, your CPA can assist you in determining what your EBITDA is and what your selling price should be. This will prepare you to successfully navigate the negotiations and due diligence process, maximizing your selling price.
During the life of your business, you may experience economic or life challenges which can impact your initial exit strategy, so it is important to stay abreast of these issues and change course as needed. For example, a competitor may make you and offer you can refuse long before you’re ready to sell, the economy has taken a down turn which impacts your profitability, governmental regulations could impact your operations or you family members may have no interest in having a family business.
Being proactive in long-term thinking can bring you peace of mind by, knowing your goals and by regularly accessing them to ensure you are on track. This will keep you focused to ensure your goals are obtained.