How to Create an Exit Strategy for Your Business
Business Quotes: Tech mistake|Selling a business has rarely ever been an easy and straightforward endeavor. There is much to consider and unless you have a clearcut exit strategy, the entire process can be held up longer than you were prepared for. Even with a well-defined exit strategy, there may be a few bumps in the road. However, with a bit of help from a Merger and Acquisition advisor, you can circumvent many of the obstacles potentially standing in your way and find the right buyer for the business.
Establishing an exit strategy should be done long before you are ready to sell the business. Ideally, it is something to plan several years in advance, although many business owners don’t do this and end up limiting their options when the time comes. Business Quotes.
What is an Exit Strategy?
An exit strategy is a plan for ending the business. This normally means selling it, but it can also mean handing over control to family members or even winding up the business for good. The aim is to put plans to place that allow a smooth transition. A good exit strategy takes everything into account, from customers and existing operations to employees to stakeholders.
If the business is strong, an exit plan will maximize profits, but if the business is not doing so well, it will help to minimize the losses.
Read on for a clearly defined seven-step process that will culminate in you closing the sale and moving on to pastures new.
1. Establishing a Market Value for the Business
One of the first problems many business owners encounter is in regard to the valuation of the business. Even the most astute of business owners aren’t ready to set a fair market value when selling a business that has been their literal lifeblood for many years. How do you value that? In short, you don’t! Business Quotes.
This is where that M&A specialist steps up to help you establish fair market value. Settling on a fair number involves intensive research and analysis, so it is always best to work from a vantage point of knowledge and experience.
Undervaluing the business might secure you a quick sale, but you will lose out financially. It is only ever worth doing this if you genuinely do want a quick sale – i.e., you’re an oligarch hoping to cash out fast before sanctions bite too deep. Overvaluing the business is likely to see the sale fall through once the buyer looks more closely at your financials. Business Quotes.
Before you do anything, build a complete picture of the business’s financial position. Potential buyers will want to see your management accounts and financial forecasts before progressing with a purchase. Accurate accounts will provide a true picture of your current assets, liabilities, and business performance. You may discover the business is worth more or less than you thought, which could influence your future plans.
2. Setting a Timeframe
Are you trying to retire? Do you have plans for your future that depend upon the timely sale of your business? Setting a timeframe in which you want the deal done and over with can be a huge concern. With the right M&A team advising you, it can be a straightforward process, but be realistic in setting a timeframe far enough in the future to provide for those back-and-forth negotiations that you can expect. Business Quotes.
Consider how long it will take to find a buyer, prepare the paperwork, and deal with everything else involved in selling a business. Depending on the size and complexity of the business, this could take months. The more organized you are, the faster things will progress.
3. Begin Marketing
At this point, once you have a realistic valuation and a time in which you expect to close, you can begin marketing. Bear in mind that the type of business you are selling will impact the type of marketing strategies you need to employ. With that said, once again let your M&A advisor guide you on how to market your business for sale. Business Quotes.
4. Clearly Defined Structure
Don’t let this be a deal-breaker at the final leg of the course. Clearly define exactly what comes with the business sale and what you intend to keep. Everything must be in writing in the contract to avoid any confusion that could delay, or even kill the deal.
Many business owners have tremendous input in the business’s day-to-day operations. For example, if you wrote the code for the business’s main software product, selling the business could be tricky unless you have already delegated all responsibility to a new team. Business Quotes.
If this sounds like you, there will need to be a smooth transition of leadership. It could take months for a new leadership team to step into your shoes, and it may also impact the value of the business. After all, a business that can easily be transitioned to new owners in a seamless fashion is worth more than one where the current owner is closely involved in all areas.
5. Understand Legalities
If you want to have full protection as a seller under the law, it is advisable that you hire a business attorney to consult with. This university explains quite nicely what it is that a business lawyer does. Some states and countries use attorneys as closers for real estate and business sales, so you might want to work with an attorney with this area of expertise. Business Quotes.
An experienced attorney can protect your interests and make sure the contract of sale is fair to all parties. Look for someone you trust and can work closely with; personality clashes make life a lot harder during stressful negotiations.
6. Factor in Taxes
Altogether too often a seller is extremely disappointed in their net amount after all fees and taxes are factored in. Although this is listed as the sixth step in a seven-step process, taxes and fees should be factored in before establishing and marketing a list price. There may also be tax forms to be completed and signed prior to closing. This is the point at which you can make modifications, then move back up to the top if necessary to adjust the asking price. Once you are comfortable with the expected profit margin, you can actually begin doing the succeeding steps rather than just creating them! Business Quotes.
7. Close the Deal
Once a contract for the sale of your business has been signed and brought through the period of due diligence, you are ready to set a date, time, and location for closing the deal. Whether it took you months to get to this point or just a matter of weeks, it’s the end of the journey.
By this stage, you should have informed your customers and clients that the business is being sold to a new owner. Introduce them to the new owners to retain goodwill. You also need to tell your employees and reassure them their jobs are safe if necessary. Business Quotes.
These steps are usually part of an exit strategy for a land-based business but selling an online business follows a similar process. The only difference might be a teleconferenced or digital closing, but all else remains the same.