,Business owners don’t often think about an exit strategy when starting since the focus is on making the venture succeed. However, around a third of business owners eventually end up selling their businesses. Whether it’s to have more time to spend with the family or there is a lack of enthusiasm to manage day-to-day tasks.
In this article, we share top tips for how to set up your business, so it’s ready for an exit and why it’s important to start the process as soon as possible. The actionable advice is applicable to all businesses, and most steps are good business practices that you should already be doing.
What is an exit strategy all about?
Exit strategies refer to the selling of a business. The entities that typically buy business include investment companies, competitors, strategic buyers, and so on. Typically, businesses sell for around 36-60x their monthly profits, but the number varies based on the industry, company assets, if the business is set up for an exit, and other factors.
Therefore, it’s important to set your business up for an exit correctly. It ensures you can increase the sale price at the end of the entrepreneurial journey. In some cases, these steps can be time-consuming or difficult to complete. Especially at the end when you’ve realized that you want to sell. Hence we encourage all business owners to get ready for an exit.
Advantages of Preparing your Business for an Exit
If you’re still not sold on the merits of getting your business organized for an exit, here are a few advantages:
- Higher sale price: the biggest reason to make your business exit-ready is a higher sale price. The work put into selling your business can pay for itself in a significantly higher return than you would have received otherwise.
- Quicker sale: you might have a harder time finding a buyer if your business is in a mess. Buyers might be concerned that there is a problem you’re not coming clean about. Or, have difficulty figuring out an accurate valuation for the business. A quicker sale means you can get on with your life. Also, there is a lower chance of the business losing value because of unpredictable market circumstances.
- Avoid legal problems: if you don’t have your paperwork in order, you may need to hire lawyers to look at various parts of your business before buyers are willing to make the transaction. This could be hiring a patent attorney to ensure that any patents are legit or a copyright lawyer that can assess if your business is properly protected.
- More buyers: professional business buyers can see if a company has done the work of getting ready for an exit. This creates a good first impression, and buyers may be inclined to think that the business is organized and won’t cause a headache for them down the line. Therefore, put in the hard work, and you’ll get more buyers, which makes selling the business easier.
Strategies for Getting Your Business Ready For and Exit
Now let’s dive into the strategies any business should use to ensure their business is ready for an exit.
- Share news with employees: it’s important to let employees know ahead of time so they are not surprised by the transfer of ownership. During the turbulent time, it’s the employees that will ensure the company continues to run smoothly. You need them on your side, so show respect by being transparent about the exit.
- Organize finances: make sure your accountant organizes and prepares the finances, so they are clear and transparent. This allows buyers to glance at a company’s financial health, which is their priority when evaluating companies for purchase. Also, if you’re doing the accounting yourself, now is the time to hire an accountant for an audit. This ensures there will be no problems during the sales process.
- Speak with business buyers: not sure what the business buyers in your industry are looking for? Why not do some research by selling your business and see what buyers are paying attention to. You’ll have a list of noteworthy factors that deserve your attention to ensure potential future buyers will not be put off.
- Choose new leadership: during the business transition, you’re unlikely to be an effective company leader, and you won’t be in charge of the business for much longer. Therefore, it makes sense to choose a new leader that can help with the transition. Buyers will be glad that a trusted employee can oversee essential daily tasks and help them understand the critical details.
- Add value to your business: the work you do leading up to the sale can make your business much more attractive and greatly increase the sale price. This could be to add more products, improve the website, gain market share, and add company assets. Anything that makes your business stand out will catch the eye of investors looking for a promising business model.
Follow the advice in this article, and negotiating a higher price for your business will be easier. Think of getting your business ready for an exit as a way of arming yourself for negotiation with buyers. You’ll succeed more if you can indicate why your business is worth the price and a better choice than competitors.
Additionally, the process of getting your business ready for an exit is ongoing. At every step of the way you should ensure the business is organized. You’ll never know when you’ll get the urge to sell. Therefore, having the option to sell in a short time period is the goal of getting prepared.