Creating a Successful Exit Strategy Starts by Asking These 3 Questions
A great exit can set a founder up for lasting financial wellness or help them fund additional ventures. That’s why for countless entrepreneurs, a business exit is part of the long-term plan. Rhett Power discusses how to prime your business for an incredibly lucrative exit.
Most entrepreneurs probably don’t envision spending their entire lives working on one business idea. By nature, individuals who seek out entrepreneurship tend to love the challenges that come with starting and building a business, and they often use the rewards of a profitable exit to fund subsequent ventures. Some founders even launch with the express purpose of making an exit after a certain amount of time passes or specific milestones are met.
Whether you dream of one day selling your business to a larger company, turning it over to family members, or taking it public, it’s important to have a plan in place first. A codified exit strategy can inform your decision-making when unexpected scenarios arise, give you a realistic sense of the value of your business, and reveal opportunities for maximizing that value. Creating a plan doesn’t have to precede any imminent action, but it does improve your odds of achieving an optimal outcome when the time for action eventually arrives.
Just like a business plan serves as a guide for launching and growing your business, an exit strategy provides a blueprint for your transition away from it. In order to choose the right exit approach, you’ll have to consider your personal financial goals, your obligations to investors or creditors, and the degree to which you want to remain involved in your business. You also should account for the legacy you hope to leave as a founder and the interests of the people who have helped you get to where you are. As you develop or revisit your exit strategy, ask yourself the following questions to ensure you’re set up for success:
- What are my company’s strengths and weaknesses?
The upside of your financial return as an exiting founder is directly tied to the value of your business, which is largely a measure of its potential. A company with steadily increasing sales and profit margins, a solid leadership team, a large and loyal customer base, and a differentiated offering in a large market is an attractive target for buyers. A company that lacks these and other important attributes might be seen as a sinking ship.
A simple strengths, weaknesses, opportunities, and threats analysis is a great starting point as you think about whether your business is on track for a successful exit. As chief marketing officer at CCS Innovations Bonnie Taylor says, “It is impossible to accurately map out a small business’s future without first evaluating it from all angles, which includes an exhaustive look at all internal and external resources and threats.”
Although you might know almost everything there is to know about your business, make time to talk to a wide range of stakeholders — including employees, partners, and customers — to gain additional perspective. Encourage them to be as objective as possible when providing feedback so that you can develop an accurate and comprehensive view of your strengths and weaknesses.
- What story am I telling with my business?
A compelling origin story can serve as a road map for strategic decision-making; a beacon for attracting customers, investors, and talent; and an intangible asset that can substantially increase the value of your company. As the time for making an exit approaches, your story can act as a magnet, drawing in people who want to keep it alive and repelling those whose interests aren’t aligned with yours.
Corey Blake, an expert in business storytelling and the CEO and founder of Round Table Companies, believes that good storytelling can help business owners preserve their legacies and improve the odds of an optimal transition. “The more that owners create an environment for potential buyers to fall in love with the business, the more likely it is that buyers will be thoughtful about what they do with that company once the previous owner lets go of control,” he writes. “And by telling a great story, owners invite new buyers to play the leading role in the continuation of that tale — the business’s next chapter.”
- What exit approach has the biggest upside?
If you’re a current business owner hoping to execute a sale in the near future, you should prepare for a significant uptick in competition. Data from the Exit Planning Institute reveals that Baby Boomers own roughly 66% of the American business market, and most will be stepping away from their companies within the decade. That means companies seeking acquisition targets will have a growing number to choose from, which could make it harder to maximize your return.
If you’re the sole proprietor of your business and don’t have family members interested in taking it over, liquidating your company by selling its assets could be a fairly straightforward exit strategy. Proceeds from land and equipment sales could be substantial, but you should consider the potential impact on employees, customers, and other stakeholders before deciding to shut down operations.
If you have employees, business partners, or investors who might be interested in acquiring your stake, negotiating a buyout could also be a relatively straightforward (and profitable) option that preserves your legacy as a founder. In general, the sooner you start discussing transitions, the easier it will be to ensure everyone is on the same page when it’s time to negotiate.
Ultimately, you want to be the one to decide how and when to move on from your company. By answering the questions above, you can devise an exit strategy that improves your odds of a successful transition — no matter how far away it might seem.
Written by Rhett Power.
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