You may have heard the saying that there are only two certainties in life: Death and Taxes. However, in the life of a business owner, there is one other certainty: The eventual exit from their business.
Now, you might believe you will work forever which may be true for you, but the reality is, is that nothing lasts forever, so it is best to plan accordingly. The most ideal exit for a business owner is through a planned exit which might be in the form of an acquisition, merger, sale, or a simple wind-down and close. These are all valid exit plans, but the key word here is PLAN. As an owner, you will make an exit of your business at some point; the question now is, do you want to exit on your terms or not?
The first step in planning your business exit is determining how you want that exit to look. We have spoken with business owners that have such a clear exit strategy, that not only do they have a timeline of when they want an exit, they know their target acquirer and the value they plan to achieve in that sale. Most business owners do not have that clear of an exit plan, but they do have an idea of when they want to exit and a dollar figure they would like to achieve in a sale. Take time to evaluate the different options that you will have when it comes time to exit to determine the best strategy that will meet your desires and needs.
Once you have established the end goal, start to work backward. If your goal is to sell your company for $5 million, what will your annual revenue and EBITDA need to be to reach that goal? Understanding the finances of your business and the different revenue drivers involved in year-over-year growth is vital to the overall exit plan. Do you have up-to-date information on your financial situation to fully understand where you are now? If you do not have a good grasp of this information now, hire or contract a high-quality accountant that can be your ally during the stages of growth, maturity, and winding down.
Next, start to identify the individuals you have on your team now that can drive the growth of your business. You might also consider which of those employees exemplify the characteristics of a leader that you can start training to take your place. During an acquisition, the role of the business owner can be detrimental to the overall sales price of the business as, in many cases, the business owner is the primary marketer, salesperson, operations director, and the “lifeblood” of the company. When you, as the owner, are integral to the success of the business, the exit may not be as smooth as it could be. Because of this, you might be required to be a consultant for a period of time to ensure employees and customers stick around under the new ownership. If that is not an option, the sales price will be significantly adjusted downward as the main value of the business is in you, the business owner, and not in the business itself. Developing repeatable processes, removing yourself from the day-to-day operations, and transitioning responsibilities to others on your team can help alleviate the impact of your eventual exit.
Planning your business exit does not have to be scary. Once you are able to envision what you want the future to hold for your business, you can begin taking steps to achieve your end goal. Setting the course of your business with the destination in mind will guide your course and will ultimately help you exit with grace.