Week 8 of ENT 650: Harvesting – Setting up your Exit Plan

Congratulations, you just started your business!  Now, the question arises about Harvesting your business.  Do you have an Exit plan?  Why are we talking about the end, when we just got started?  An Exit Strategy is something that every investor/small business owner needs to have.

Why is it important to have an Exit Strategy?

  • Seize the full value of a business and create future options for you and your employees.
  • To appeal to investors.
  • To easily transfer ownership to the next generation.
  • To be prepared for any changes in your personal life style.

Selecting the right Exit Plan starts with some simple questions:

  1. Where do you see you and your business in the next 5 years?
    1. 10 years?
    2. 15 years?
    3. 20 years?
  2. How do you see your relationship to the business changing in those time frames?
    1. Less hours?
    2. More vacations?
    3. Different role?
  3. Do you want to Exit the business fully or partially?
  4. When do you want to leave the business?
  5. How much money will you need to continue your life style after you Exit the business?

 

Positioning your small business to be a desirable acquisition can be very profitable.  Businesses buy other businesses for all kinds of reasons.  The trick to success with this Exit strategy is to target your potential acquirer(s) in advance and position your business accordingly.  And, of course making sure other businesses know that your small business is worth it.

Here are some tips to ensure a successful sale of your business:

  1. Prepare a Final Exit Plan: This protects the net worth of a business owner and maximizes the value of the business.
  2. Seek Professional Advice: A successful sale of a business requires a carefully planned and structured process to maximize the sell price.
  3. Understand the value of the business: What are people buying?  How are you convincing potential buyers that they must have your business (well, buy it).
  4. Sell at the right price/time: Choose an Exit time to avoid any unforeseen circumstances.  Sell when the market is favorable to maximize business value.
  5. Have complete documentation: Quality business documentation will attract the right buyer and answer their questions without any delay.
  6. Select the right buyers: It is important to pre-qualify buyers and always use confidentiality agreements before releasing any critical business details.
  7. Deal with multiple buyers: Multiple buyers create a competitive environment and a sense of urgency.
  8. Understand Buyer Motives: Understanding why a company may want to buy your business, may have an impact on if you sell or not.  This will also help you with correctly pricing your business and setting expectations.
  9. Emphasize Value, Not Price: Focus on value, earnings, and potential and return on investment.  Show the potential buyers what your business is about.
  10. Focus on the Future: Focus on the future performance, opportunities for earnings, growth and strategic advantages.  Explain the past and sell the future!

 

October 11, 2017

  • Hi Christina,

    You’ve offered a nice synopsis of what an entrepreneur needs to think about for his or her exit plan. Another part of that exit process, particularly if you have investors, is figuring out how to maximize their return. Would you agree?

    -David

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