How an Owner Can Create a Smooth Business Exit
Selling your business is a once-in-a-lifetime event.
Regardless of how you exit your business, the process is time-consuming. A great deal is on the line financially, and that can cause anxiety. You can reduce the stress of a business exit by getting expert advice and creating a plan.
Business Exit Strategies
Here are 7 effective strategies that can make a business exit go smoothly.
1. Understand What Purchasers Value
The first strategy is to consider the value of your business from a buyer’s point of view. What company traits are valuable to a buyer?
Competitive differentiation and uniqueness in the market
Companies that can build brand awareness are seen as more valuable. Apple, for example, offers products that consumers view as different (and better) than the competition. As a result, buyers are willing to pay more for their products.
Track record of sales, positive cash inflows, and net profits
Cash flow is just as important as profit. A profitable business that struggles to collect cash is less attractive to a buyer. Build a firm that grows sales and drives cash inflows.
Recurring revenue streams
Consider this quote from the Harvard Business Review: “Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.”
Valuable companies generate repeat business, which leads to a consistent stream of revenue. They can focus their marketing efforts on new clients, rather than replacing customers who stop buying products.
Carve out a profitable niche
Many successful businesses establish themselves as the best company in a specific niche. They can develop a deep knowledge of customer needs and preferences. A niche business may also encounter less competition.
2. Restructure company to uncover hidden value
Once you understand the metrics that motivate a buyer, take steps to increase the value of your business.
Make the effort to reduce customer dependency on you, the owner. Organize your staff so that others can develop client relationships, and explain to your customers that the change will provide them with a higher level of service. If more people on your staff work with clients, problems can be addressed faster.
Analyze your company operations, and document all routine tasks in a procedures manual. Using a manual reduces confusion about each task, and serves as a training tool for your staff.
Assess your accounting system, and use technology to save time and to produce accurate financial statements. Use software to manage accounting, invoicing, and other tasks.
Consider the key people in your business, and make any needed changes to improve your team.
3. Improve Your Team
Your managers produce value, because they make smart decisions to grow sales and profits. If there’s a gap in your organization that is holding you back, find a manager who can fill the position. Delegate more of your management tasks to your team.
Create an advisory board. You need a group of independent thinkers who are willing to spend time with you. Meet with your advisory board on a consistent basis, and ask for feedback about your business.
4. Review Contracts and Agreements
Review your contracts with partners, employees, vendors, and customers. Many of these agreements must be changed when you sell your business. Find out where your contracts stand now, so you can make plans for an eventual sale.
Create incentive compensation plans for valuable employees, so they stay after a business sale.
5. Assess a Sale to Management or a Relative
Selling the business to employees, management, or a relative can lead to a smooth transition. You know the people involved in the transaction, and your staff may have more confidence with the new leadership.
The sale will only succeed if the transaction makes financial sense for you, and if the buyers have the leadership skills to run the company. You have a personal relationship with these people, and saying ‘no’ to a potential sale may be emotionally difficult.
Make sure that the sale makes financial and management sense.
6. Selling Your Interest to a Business Partner
If you’re in business with a partner, consider formalizing an agreement that outlines how one partner can sell his or her business interest to another partner. The agreement can include valuation metrics used to value the business. If you put an agreement in place now, the sale negotiation will go more smoothly down the road.
7. Selling Assets
Finally, you may sell company assets, rather than the entire business. Assume, for example, that you want to use machinery and equipment to start another venture. You might sell your customer list, building, and warehouse assets to a buyer, and keep the other assets for your new business.
A business exit requires careful thought and planning, and a business broker can be your trusted advisor throughout the process. Business brokers can help with these issues:
- Use industry knowledge and marketing efforts to find buyers
- Understands the seller’s motivations, and potential obstacles to a sale
- Find buyers who are ready to provide documents for due diligence
- Pricing: Use metrics to determine the business price
- Research: Analyze the sales of similar companies, and industry trends
- Negotiates the final price on seller’s behalf
Work With a Trusted Advisor
At Raincatcher, our business brokers focus on the seller’s needs, not our own.
Our objective is to educate the seller about their options. If it makes sense to work on the business, we will recommend affiliates that we partner with to help the owner maximize the value of their business. The Raincatcher team has worked with thousands of businesses, and we all have that small business entrepreneurial spirit.
Raincatcher works with other professionals, which may include an exit advisor, valuation expert, accountants, and attorneys. Our firm uses industry-leading proprietary valuation resources to value your business.
We will operate as your trusted advisor throughout the entire sale process, so you can sell your business at an attractive price.
OTHER EXIT PLANNING RESOURCES
