Why Waiting to Create an Exit Strategy Could Be Your Biggest Business Mistake

In today’s rapidly changing business landscape, understanding the importance of an exit strategy is not just essential for your future but crucial for the sustainable growth of your business. As a business owner, particularly if you’re over 45, thinking about your exit plan is as important as your operational strategy.

You’ve poured your heart, soul, and countless late nights into your business. It’s more than just a company; it’s your baby, it’s a living testament to your dreams, ambitions, and hard work.

It’s never too early to start. Here’s why you should prioritize building your exit strategy and how you can run your business as a sellable asset, ensuring it thrives even when you’re not at the helm.

Have an Exit Vision

Who will buy your business? Having a view of the type of buyer helps guide some of the investments that you will need to make and what needs to be proven. Are you looking to sell to a pure financial buyer? A significantly larger competitor? A large company looking to enter into your space or your location? Employees? Your Management Team? All have their benefits and challenges. How much money does the sale need to generate for your future and what would it take to achieve it with the business?

I recall a meeting with a prospective client, a hardworking entrepreneur who had invested two decades into his craft. Yet, he was taken by surprise when he discovered that his business lacked many of the items that a buyer in his field would normally expect. For example, the business didn’t have the necessary next level systems and documentation to make it appealing to buyers. The hours he had spent building this dream crumbled when he realized it lacked the polish of a sellable asset. His heart sank as he faced the possibility of closing up shop instead of cashing in on a legacy he had built with passion.

Why Exit Strategies Matter for Business Growth

A common fear of business owners is that their life’s work is worth nothing and is unsellable. The truth is, most business owners overlook the exit strategy, leading to lost opportunities when the time comes to sell. According to various studies covering small and middle business, at least 67% of businesses put on the market do not sell. The reasons often stem from a lack preparation. You may have poured your heart and soul into your enterprise, but if you haven’t consciously taken the steps to make it an appealing asset to prospective buyers, you could be leaving significant value and peace of mind on the table.

Running Your Business as a Sellable Asset

The first step to developing a successful exit plan is to view your business as a sellable asset. What does that entail? It means that from the outset, you should operate with the future sale of the business in mind. This doesn’t necessarily mean you should start to wind down operations or disengage from daily activities. Instead, you should implement systems that enhance your business’s value. Document processes, invest in employee training, and foster a company culture that raises morale and productivity. Make sure your financials are impeccable. The more efficient and self-sustaining your business is, the more appealing it will be to potential buyers.

When buyers evaluate a business, they consider not only its profitability but also the potential for future growth. Make sure your company has robust systems in place, a dependable staff, and a loyal customer base. This way, prospective buyers can envision a smooth transition and continued profitability after your departure.

Roadmap to Close Your Value Gap

Another key factor in successfully implementing an exit strategy is strategic planning. Developing a clear roadmap should begin well before you’re ready to sell. Craft a comprehensive business plan that outlines your long-term goals not just for growth but also for succession. This plan should incorporate financial forecasts, marketing strategies, potential risks, and a timeline for your exit. There are great resources available if you need some support in creating this. Also, engage with a financial advisor to understand what you need to generate out of the business and also advisors that specialize in helping owners to understand they typical value and if there is any gap with your needs and what the business is likely to create from your plans.

Profit Gap

Often privately owned business are run to minimize the owner’s taxation. Decisions are made to reduce profitability that while sound in taxation terms, hinder the company’s ability to grow as well as desirability by buyers. Preparing your business to be sale ready for sale also involves increasing its profitability to at least what is expected for your industry and location. Look at your financial statements critically. Identify areas where you can sustainably reduce costs, streamline your operations, and maximize profitability. Enhanced cash flow can significantly boost your business’s value.

Revenue Gap

Is the business dependent on a small group of clients? Many businesses survive in the early days by servicing a small number of loyal customers. This is a risk that buyers and often not willing to take. Consider diversifying revenue streams as well as cultivating customer loyalty or revenue approaches to create a more resilient business model. The better your business performs financially, the more enticing it will be for prospective buyers.

Legacy

Moreover, as you consider an exit strategy, think about the legacy you wish to leave through your business. The impact and influence an entrepreneur has on the community and industry stretch beyond their operational years. Increasingly, today’s buyers are not only looking for profitable ventures but also businesses with a purpose. Communicating your values and vision can attract buyers who are aligned with your mission, ensuring that your business continues to foster the culture you created.

Engaging in community outreach and corporate social responsibility initiatives can enhance your brand’s reputation and appeal. Consider how you can integrate your values into your business operations, creating a narrative that resonates with potential buyers and gives enduring meaning to your brand.

Being Prepared

Lastly, remember that a strong exit strategy isn’t just about financial gain. It’s about finding the right opportunity that allows you to transition smoothly, maintain relationships, and perhaps even stay involved in a different capacity if desired. Establishing your exit strategy early gives you the luxury to step back and evaluate potential options, ensuring you’re making informed decisions rather than succumbing to pressure. Don’t make the mistake that many owners do by leaving this too late.

Conclusion

In conclusion, a well-thought-out exit strategy can lead you not only to a lucrative business sale but also to a legacy that embodies your beliefs and continues your impact. Take the time to reflect on your objectives, increase your business’s value, and craft a plan that secures your future while allowing you to create cherished moments with family and friends. After all, true success isn’t about working harder; it’s about working smarter and planning for what lies ahead.