Step 1: Determining Your Exit Goals
The first thing to do when thinking about exiting your business is to figure out what your sale objectives are. This is an important step due to the multiple possibilities for business owners. Here are a few questions to think about while considering your options:
- When do I want to sell my business?
As soon as possible? In 1 year? 5 years?
- What type of buyer do I want?
Individual buyer, strategic buyer, private equity, etc.
- How much of my business do I want to sell?
100%, 50%, 10%, etc.
- Do I want to stay on board with the company after a sale?
Stay on as an executive, get hired as an employee, stay on as an advisor, work as a part-time employee or leave and walk away?
Step 2: Construct a S.W.O.T Analysis
S.W.O.T Analysis – is a strategic planning technique used to help an organization identify strengths, weaknesses, opportunities and threats related to business competition, project planning and exit strategies. This is an important step to reflect on your business and figure out a plan to enhance performance.
Step 3: Polish Up Your Business
It’s time to get your hands dirty and use your SWOT analysis from above. Focus on enhancing the strengths and opportunities of your business while minimizing the weaknesses and threats. This can’t be accomplished overnight, it will take time to implement these new strategies but they will make all difference when you see the value of your business go up.
A few examples of important value drivers to focus on:
- Increase revenue: Having strong revenues that grow year over year is a great indicator to buyers that your business is healthy and a good investment. Most buyers will either turn away from a business with declining revenues or offer a lower price to adjust for the increased risk.
- Reduce costs: Some business owners are great at keeping costs to a minimum and some are not. In any case, there are usually areas to improve upon such as renegotiating leases and bank loans. The higher your profits, the higher your valuation will be.
- Upgrade your online presence: The first thing a buyer will do is look at your website, social media and digital footprint. Given the current role technology plays in our society, it’s crucial to have a presentable online existence for your business to confirm the validity of your company.
- Neatly organize financials: The first item a buyer will request from you or your broker after signing an NDA is to see the financials of the business. Here, it is crucial to give them a great first impression by showing clear and concise financial statements. A good accountant may be worth the small investment to get this right.
- Eliminate business risks: When buyers are interested in your business they will be looking to uncover any potential risks that are associated to protect them from a loss. Common business liabilities include financial risk, legal disputes, weak strategy, poor product/service, supply chain issues, employee turnover, customer retention, market cycles, etc.
- Establish growth opportunities: It is important for buyers to see the upside potential of their investment. Having a deep-rooted strategy that is focused on long-term growth can help increase your business valuation. Being able to show buyers the growth potential is a good way to get them excited about your business.
Step 5: Find a Business Broker
Once you and your business are ready, find a trusted business broker to take over, find a buyer and get you a deal done. The more upfront work you can do to plan your exit strategy, the more value you will create upon exit. Some business brokers are full-service and will offer to help with the market preparation process, which includes some of the steps listed above, but some may not. Make sure you are either ready to do some of the work yourself or find the right broker to help you amplify your exit value. Doing your homework a head of time can result with more money in your pocket.