Starting with the end in mind
Steven Covey in The 7 Habits of Highly Successful People, has “Begin with the end in mind,” as habit number two. So as a business owner, you really should have thought about, or start thinking about, an exit strategy and how you might sell or handover your business to someone else.
This doesn’t necessarily mean you need to come up with all the answers, but what it does mean is that by considering the end of your involvement, you start thinking about:
- How you maximise profits?
- How you make yourself redundant?
- How to systemise as much as possible?
- Who might takeover or buy you out?
You may have a strong passion for your business – even to the extent that it almost defines who you are. You therefore might believe that you’ll never sell or retire, which is fine, but what about in 5, 10, 15 or 20 years time? What if an event occurs that means you are no longer able to be involved in the business? Wouldn’t it be better if the business was in such a position that a good quality general manager could quickly takeover the reigns and continue to successfully operate the enterprise?
Getting ready for an exit
So how do you get a business into shape so that it could be sold or a family member could take it over? Well you need to take it through some stages, which will see things become more consistent and predictable.
- Measure everything that matters (time, profit, leads, sales, materials, etc.), so you really know what is happening in your business.
- Set some goals around improving those measurements.
- Build enough surplus cash, to be able to afford to give away as many daily tasks as is reasonable to provide you with additional time to ‘work on the business’.
- Build a marketing machine that generates all the leads the business needs.
- Document and create systems and processes that means things get done, properly and efficiently.
- Build a winning team that can grow and develop with the business and/or help the business grow to the next level.
- Create a depth and breadth of strengths (cash, people, resources and strategies) that will mean the business can survive a downturn
Who can you sell to?
Family succession. A family member might be interested in taking over one day. A plan will need to be developed that will provide a pathway for them to learn about every aspect of the business and to professionally acquire the skills needed to takeover. This will generally see you being bought out over time through the profits generated by the business, unless the family member is able to get a loan to affect the purchase.
Management buyout. There may be people in the team who would like to get equity and eventually takeover completely. This will see continuity, minimal disruption for clients and an ‘easy’ exit for the owner, as there will be no real learning curve for the new owners to go through. As management will know the business, they will perceive less risk and may pay a higher amount, but you may also need to offer vendor terms.
Investor(s). An investor buyer will want to be able to have the business run under management and will want minimal involvement in the day-to-day operations. If you can offer this possibility you can look to get a better price for your shares.
Strategic buyer(s). A strategic buyer is a company who, by purchasing your business, puts another piece in the puzzle which will increase the value of both your business and theirs by a quantum. This will mean they will be willing to pay more than most to buy you out.
There are lots of pros and cons to each exit strategy, but by giving consideration early in development stages of your business, it means that you can build your asset to a maximum level and then realise it when the time comes. In other words, be in control of your destiny and take responsibility for your outcomes.
If this blog has piqued your interest and you wouldn’t mind having a no-obligation chat with someone, reach out to Alluvion Business Coaching and one of our expert coaches will gladly setup a mutually convenient time to discuss your individual circumstances.