How to Create a Business Exit Strategy and Avoid Costly Mistakes
If you’re thinking about selling your business, it’s important to have a clear and well-thought-out business exit strategy. To begin this process, you need to identify the elements that led you to consider selling your business in the first place, as the outcome of your sale is directly influenced by your intentions for selling. If you do not examine why you are selling in advance, you are much more likely to make costly mistakes.
Examine Your Motivations and Preferred Outcomes
The first step is to identify what’s motivating you to sell your business. Be honest and forthright. Money is not the only motivator involved in selling a business.
- Do you want to retire?
- Are you ready to move but your business is reliant on its current location?
- Is all your net worth tied up in your business and you to want to sell in order to diversify?
- Or, are you simply bored or burned out?
Factors such as serious illness, a death in the family, or simply owner burnout are strong motivators for a fast sale. Under these circumstances, the owner may be will to accept a low sale price from the first qualified buyer.
The Immediate Need to Exit Can Equate to a Lower Sale Price
If you move too quickly, you eliminate the opportunity to strengthen the attractiveness of your offering. In addition, you may shorten or eliminate the possibility of a transition period, which could likely force a lower offer. Outstanding circumstances and pressing financial needs may force an immediate sale, but this can preclude your ability to offer seller financing, which typically supports a higher selling price.
Planning Ahead of Time Is More Likely to Yield a Higher Sale Price
In contrast, some business owners plan their business exit strategy a much slower pace. Their motivations for selling may be to take money off the table for their retirement. Or, they may be looking to raise capital to invest in a new venture. Under these circumstances, the owner is more willing to take the time and properly prepare their business for sale, and then wait for the right buyer to come along. These patient owners are usually more flexible and willing to finance a portion of the sale of the business. The sales process may take quite some time, but the outcome is more likely to yield a qualified buyer who is willing to pay a higher sale price.
Define Your After-Sale Interests
- Are you concerned about the future of your business?
- Do you want to leave the business once and for all?
- Do you want to stay involved, as part owner or consultant?
- Is there someone you’d prefer not to sell to?
Everyone hopes to receive an optimum price for the sale of his or her business, but many sellers are also concerned about the future of their businesses. Some want to leave once and for all and others want to stay involved, either as a part owner, a contract employee or as a consultant to the new owner. As a seller, is it important that your business remains in its current location in order to minimize disruption to your clients and to your staff? Is there a key competitor that you’d prefer (or prefer not) to sell your business to? Is there a key employee or family member to whom you prefer to sell your business?
Sellers’ Motivations Have a Direct Impact on the Outcome of the Sale
The sellers’ motivations impact their desired terms for the deal, as well as their expectations for the deal. This fact is not lost on prospective buyers who are quick to ask why the owner is selling. The answer strongly influences how potential buyers structure their offers. By carefully understanding your motivations and the outcomes that are important to you, you can define the variables that will shape your business exit strategy.
Identify and Resolve Any Potential Conflicts
Once you’ve examined your motivations for selling your business and your desired outcome, you’ve probably discovered a few conflicts. You may want an all cash sale, but you also want a high selling price. You may want to get a high selling price and a minimal disruption to the existing business. Any possible conflicting priorities could jeopardize the successful sale of your business.
Make a Ranked List of Your Priorities and Formulate a Sales Strategy
Business brokers can be very helpful in assisting sellers resolve their conflicts, develop a sales strategy and achieve the best possible outcome. Developing a pre-sale preparation plan can be one of the most effective ways to iron out many of these conflicts. Pre-sale preparation will not only help owners more accurately assess their business, but also help them prepare it for market and receive the best possible sale price.