Challenges in Exiting Your Business
Is Your Business Valuable Enough to Exit?
The topic I wanted to talk about today came in as an answer to the question, “What’s your biggest challenge related to exiting your business?” In the many conversations I’ve had with people, this has been a burning issue – having the business valuable enough to exit.
So asking yourself that question, do you have an idea of what your business is worth? How do actually go about figuring that out? One way to do it is to could get a business broker in to give you some idea of your valuation to see where you’re at now. Because interestingly, every business is different but every business is the same.
There are drivers that actually affect your business and no matter where you are in the growth phase, each one of these drivers will come into play. So if you’ve been in business for a number of years, for instance, and you are past the early development stage, things like your sales and marketing, any recurring revenue, what sort of legal documents you have in place, any agreements, contracts, etc. These are, in fact, the essential items that make up the value of your business.
Free Tool in Evaluating Your Business
Something I’ve offered to a lot of people if you wanted to take this up, is the opportunity to look at an overview – or a benchmark valuation for you and it won’t cost you anything. I’ll give you the details of that at the end. So you can identify which value drivers you need to focus on to be able to increase the value of your business.
Looking at one of my clients who has actually already gone through this process, we’ve been able to identify there’s a significant value gap. It’s quite a large business currently. The gap was about a couple of a million dollars and the value gap is being created by certain elements in the business they need to focus on. There are some red flags that are popping out which are potentially caused by not enough attention to the people or more specifically, the senior management in the business.
When you’re in a slightly larger business like that, if you really rely on one or two people or even just a single customer or a cluster of customers, that can make a huge difference to your business – because if you lose that business then that’s a red flag. It will cause your business to be devalued in the eyes of any potential buyer in the future. Identifying how you can improve the business’ value is really important.
So I’d like to invite you to go to theexitstrategygroup.com.au/freereport you can download an invitation to a Core Value Discover questionnaire. If you go through that, you’ll get an idea of value and it will actually give you some feedback. It’s a very simple process.
It’ll give you some feedback on what your business might be worth today on the market and where the value gap is so that you can identify some red flags you need to pay attention to, or certainly it will help you identify the main areas in your business that are creating limitations to your future growth.
I’ll give you that URL again. It’s www.theexitstrategygroup.com.au/freereport.
Timeframe in Exiting Your Business
One of the other major questions or issues, challenges that people have mentioned is about finding enough time to plan an exit strategy. One of the areas that I really urged you to concentrate on is thinking about the timeframe, in fact, that you may wish to exit.
It’s really important that you do give yourself enough time and that’s essentially, I’m suggesting to you two to five years would be really great. You can then put into your daily, weekly, monthly planning processes some time that you allocate to actually stop to think about planning your exit strategy.
Now, if you’re not in the habit of creating plans, this is a really good time to start. No matter what size the business, you really do need to get some structure and your planning processes even it’s as simple as when you start to do your financial budgeting for the year. Allocate some time around those processes so that you can, in fact, start.
Thinking about your end game, what is it? Have you thought about it? Is your exit plan designed to get you to a place in time or do you want to get it right for the next generation? Do you want to create a business that you grow and finally sell to a large, strategic buyer so you can maximize the amount of money that you get out of it.
Ideally, if you have your planning processes set up so that you can allocate time once a month, once a quarter, maybe even every six months to go through every element of your business just to make sure that it’s actually shipshape. You’re going to have a much better business that’s going to run more effectively, more efficiently, more positively with less stress.
If somebody does come along unexpectedly, you’re actually ready to be able to take advantage of some offers. Planning is a discipline. Finding the time, it’s not an excuse. You can do it. You’ve got to be able to plan in your business because if you’re lurching just from one thing to the next then, frankly, you’re doomed. It’s not going to give you any satisfaction; you’ll be under a lot of stress.
There are many ways to be able to get yourself in a mindset to be able to allow yourself to take the time to do that. I’m not going to go into that area at this stage but I think that it is simply a matter of programming your planning time into your normal business planning processes and it’s something an exit plan happens concurrently with those normal business planning processes.
You’ll find that you’ll be able to get your business even better the more that it is today by thinking about the growth that you need to have in order to be able to exit.
Changes in Your Business Warrant a New Finish Line
This is an interesting one that I’d like to chat about with you. What happens when your business changes? Say for instance, you have already defined a finish line. In other words, you’ve figured out the end of the game that you had it mind and then suddenly, the business changes. An opportunity comes along for you to grow your business, perhaps through an acquisition or perhaps through a merger.
I’m talking here about a case where you may have three or four partners in the business and this is all very hypothetical. But say for instance, you have someone who is close to the 60 and then you might have two or three other shareholders who are, say, much younger in their 40’s and have different needs and different aspirations for the business.
What happens when an opportunity like an acquisition comes along, you decided as a business you’re going to grow the business and therefore, your original thinking changes. Because now, all of a sudden, you have a new leaf on life and this often happens when you do have new business opportunities come into play and you suddenly doubled the size of the business.
So, it’s really important in that process to actually think about what your new finish line and not just take for granted that what was in place previously is actually going to stay that way. Do you need a new exit plan? You do. You need to think about it. You need to think about the individual needs and wants of the people who are the current shareholders and what they each have in mind.
These are often considered to be on the back burner or they’re not even thought about or they might be the elephant in the room that no one wants to talk about. I would really encourage you to include that thinking in your whole process when you look at growing your business whether it be through an acquisition or a merger or through something of that nature so that you do take into account everybody’s personal requirements.
The last thing you’d really want to have to face would be some challenge to the business because you haven’t addressed that particular issue. I’m sure that you have thought about shareholder agreements, buy sell agreements and matters of that nature particularly contingency plans if somebody really changes and maybe one of the older shareholders just decides that they want out because they’re mentally checking out of the business.
These are really key issues for you to address when you’re thinking about and defining a new finish line for your own business.
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