Most business owners anticipate selling their business at some point. At the same time, they are working hard in the business, they don’t feel ready to start the process or learn what’s involved and may not understand the value of what they’ve built.
So they push off the discussion, focusing on running their business rather than preparing to sell it.
After all, when you haven’t done the type of business planning that will help you understand the implications of selling, it's easy to assume you've got to keep working. You need that income your business provides.
As a result of delaying preparation and the “have to keep working” mindset, many business owners put themselves at a real disadvantage. Especially as the time to sell gets closer or if unforeseen factors force the dissolution of the business unexpectedly.
Interestingly, almost 50% of business owners end up exiting in an unplanned manner thanks to unforeseen factors — a disagreement with a partner, a divorce, disability or personal distress.
This is what I know from working with so many business owners who’ve poured their hearts and souls into running their business: That’s NOT the way to monetize all your hard work.
So how can you be smart about your exit and avoid the pitfalls of failing to plan?
Here's what you need to do — and why I always tell my clients that exit planning is your business strategy.
While entering into a sales process with an interested buyer is seen as the main event, the real work (and I would argue the time during which the value of your business is actually built) happens long before you sign any documents.
Therefore, no matter how far out your exit is, it’s critical to prepare for it now. Your ability to eventually exit your business with a deal that makes you proud and honors all your effort depends on it.
Questions for beginning preparation:
Too many owners treat their business as their personal piggy bank. That's a great mindset for supporting yourself and your family, but it's not so great for eventually achieving an even bigger payoff.
So flip your mindset from running your business to preparing to sell it by focusing on enterprise value rather than income generation.
In other words, build your business in a way that will ensure it has high value to someone else.
A business's value is based on the strength of its team, products/services, systems, processes, infrastructure and profitability. As you prepare your business for your eventual exit, focus on and invest in these areas.
Questions for assessing and building enterprise value:
Once you're focused on creating enterprise value, start thinking about your exit strategy.
Because exit planning involves answering questions that thoroughly prepare you to sell long before a sale is imminent, the exit planning you do will actually become your business strategy.
It's a brain twister but once you wrap your mind around the concept, the wisdom of it will be crystal clear.
Think about it like this:
If you want to exit on your terms and with a payoff worthy of all you've invested, you must act on your exit strategy from the start. At the least, years not months before you're ready to exit.
Questions for acting on your exit strategy:
As a business consultant, one of the very first questions I ask a new client is, "What's your exit strategy?"
I do this because I know everything I advise and do during the engagement — whether related to strategic and business planning, board effectiveness, organizational design or transition strategy — will impact the owner's end game and every employees' future. It's what's kept the old saying "start with the end in mind" relevant.
Yet very few business owners are fluent in the complexities and nuances of selling a business.
So as the end comes into view, it can be heartening to know that even the most business savvy owners don't approach exit planning alone. While this article is intended to shift your mindset, get you thinking about your exit and provide you with a few starting pointers, an entire industry exists to help business owners prepare to sell and walk them through the sales process when its time.
Which means finding the right strategic advisor sooner rather than later is a good idea.
Not only will an early conversation about your exit ease your mind, it can open possibilities you may not have thought were possible for your particular business and your personal post-exit existence.
