Why then, is the exit plan often the last thing a business owner thinks about? Everyone is going to exit sometime… it’s just a matter of when and how.
An exit strategy is the process of preparing your business and yourself for the possibility of what Peter Christman, the founder of the Exit Planning Institute, calls the 5 D’s. These are Death, Disability, Divorce, Distress, and Disagreement. The 5 D’s can happen to anyone at any age. Peter’s advice has always been to follow this guideline: “If you’re human, if you have a heartbeat and if you own a business… well, then you need to start planning an Exit Strategy.”
Creating a clear exit strategy can help a business to be ready for sale at a moment’s notice. This can be for any of the 5 D’s or a simple unsolicited offer that you can’t refuse. Sadly, most often the 5 D’s are the cause of business owners leaving the company before their planned retirement.
How do I create an exit strategy? The first step is to get a business valuation. Oftentimes, there is a huge difference between the real value of a company and the business owner’s perceived value. Imagine how this affects someone who wants to retire next year. He thinks his company is worth well over a million dollars, but when he goes to sell the business none of the offers are over $500K. Can he retire? Will this cause him to be upset…absolutely! Therefore, get a valuation!
The next step would be to make the business as marketable as possible. This could be by training an employee that could take on many of the business owner’s current responsibilities, further diversifying the businesses products or geography, or writing and implementing a business plan to show a potential buyer how they can further grow the company while proving it works.
The following step is to determine who would be the best candidates to acquire the business and why they would want to own the business. This could be competitors, suppliers, private equity groups, employees, or even family members. Having a list of potential buyers makes it easier to create a marketing strategy that will show why the business is a great opportunity for them. This will drive up demand, which will drive up the price!
Lastly, put it all in writing. We all know this, but very few of us ever do it.
If you are interested in a business valuation or help with an exit strategy Sunset Business Advisors is here to help.