There are a multitude of reasons why a founder may choose to exit the business they have built. Based on our experience advising hundreds of online business owners, we’ve compiled four of the most common reasons for exiting and why it’s so vital to have an exit strategy in place from the start.
- Time for a change: Few experiences in life are as rewarding as taking a business from initial concept through to a successful, ongoing enterprise. Many founders find their interest in a business stagnates once day-to-day operations become routine. When this fatigue sets in, many founders choose to sell the business and move on to new challenges.
- Need for capital: Often founders will have more than one business in their portfolio. It is common for owners to sell one business to fund the operations or growth of another.
- Change in personal circumstances: Retirement, deterioration in health, or the desire to spend less time working overall can all be strong motivating factors in a decision to exit.
- Strong buyer interest: If you own a successful business, you may encounter strong interest from investors wanting to acquire your company. These potential buyers might include your competitors or just savvy investors who believe in the growth potential of your business.
Whatever the motivation or circumstance behind an exit, it is important to have a strategy in place. Even if you have no immediate plans to exit, preparing for the future is good for business. Below, we focus on the details of the exit strategy you should have in place specifically related to selling your business.
Thanks in part to Tim Ferriss’ The Four Hour Work Week, passive income has become a part of most entrepreneurs’ vernacular. Many buyers of online businesses are willing to put in more than four hours, but if a business requires more than 20 hours of the owner’s time weekly, it will result in a lower valuation.
Here are two steps you can take to reduce owner involvement ahead of an exit:
- Outsource – Many entrepreneurs want to do everything themselves (usually because they think no one can do it better). Regardless of the reasoning, if you’re planning to sell your business, you’ll need to untangle yourself from well-established or automated day-to-day operations as much as possible. Outsourcing is a great way to do this. Take a look at every aspect of what you do and identify tasks that could be outsourced to a qualified freelancer. Two great sites for finding help are Upwork and Toptal.
- Standard Operating Procedures – Now that your business is running smoothly, create standard operating procedures (SOPs) for staff, contractors, and a potential new owner to follow. This is time-consuming, but it is time well-invested upfront to save more in the long run. It will help ensure that any change of ownership does not adversely affect operations.
Do It By The Book
Solid record-keeping is a must for any business—especially one that is listed for sale. Without accurate financial data, it’s doubtful any serious buyer will consider your online business. More importantly, if you’re not tracking your data, how can you measure how each aspect of your business—be it financials, marketing or sales—is doing? And adjust accordingly?
Here are the areas for which you need to ensure you have solid, easily accessible, and up-to-date records:
- Rock-Solid Financials – Every entrepreneur and CEO knows they should be keeping records of all their financial transactions. Knowing and doing don’t always go hand-in-hand (at least not nearly as often as they should). It’s easy to get buried under an avalanche of order confirmations and receipts—and the longer you wait, the harder it is to dig yourself out.
Avoid this problem before it becomes one. Keep records that enable you, and potential investors or buyers, to get an instant snapshot of how your business is doing—and how it has performed historically. Quickbooks makes this easy—it syncs with virtually any bank account—thus eliminating much of the drudgery associated with alternate bookkeeping methods.
Whether or not you’re planning to exit your business in the near future, we cannot stress how important it is to follow accounting best practices from the start. You will save yourself a significant amount of time and countless headaches down the road.
- Proven Traffic – If you’re the CEO of an online business, you’ll have to keep track of more than just financial data. A buyer will also need to see documentation of your site’s traffic trends, as well as where it comes from. Google Analytics is the tool of choice for this purpose. The more data there is to evaluate, the better, so best practice is to configure Google Analytics correctly before you launch.
- Intellectual Property (IP) – If you’ve built a successful online business, chances are you’ve generated considerable customer goodwill for your brand. Make sure that all of your valuable IP is protected by trademark, copyright, and patents in every market you do business in. A good trademark attorney can guide you in protecting what may be one of your business’ most valuable assets, and ensure they are easily transferable in case of a change in ownership.
In this article, I’ve covered some of the reasons a founder or CEO might want to exit their business, as well as an overview of specific actions you can take to prepare for selling. The key thing to remember is that these tips will help you build a successful business whether you plan on selling it right away or not. For more details on how to prepare for an exit, check out this blog post.
If you are considering a sale in the not-too distant future, consider requesting a free valuation from FE International, the market leaders in online business mergers and acquisitions. Not only will we walk you through the complicated due diligence process, we have a network of over 20,000 vetted buyers seeking to purchase the right online business. We have advised hundreds of online business owners on what it means to exit a business, so if you’re looking to explore your options, request your free valuation today.
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