What is The Best Possible Exit Strategy When Looking to Sell Your Business?
There are a lot of ways to exit a business that you’ve worked hard to build. For many business owners, it often comes down to liquidating or selling.
If you want to sell your business, you must have a carefully crafted exit strategy in place. Here’s how to create the best possible exit strategy when trying to sell your business.
Identify Your Reasoning
For an entrepreneur, much of the business is tied up in personal development, feelings, and growth. When you decide to sell, it’s essential to take time for introspection and think about your reasoning for going this route. This will help you outline the next steps.
Identifying your reasoning in the early days after making this decision isn’t just for you: it’s for potential buyers. One of the first questions a prospective buyer will ask is, “why are you selling your business?”
Answers built upon negativity can be off-putting to potential buyers, even if the business is performing well. Framing your reason in a positive, hopeful light can make all the difference when trying to make a sale.
For example: “I’m bored and want a new challenge.” should be reframed as, “Building successful businesses is a passion of mine and I’ve brought this one to incredible heights. I want to assist with a transition and use my skills to take on a new challenge while handing the reins over to someone who can help the business thrive for years to come.”
Pick the Right Timing
Just because you want to sell your business now, doesn’t mean it’s the right time to do so. When you make the decision to sell, you need to accept the fact that the timing might not be right.
Work with the experts to choose the right timing for selling your business in your area. For example, if your business operates in Kansas City, you should have business brokers from Kansas to take a look at your business and help create a timeline.
Timing is everything in business. Don’t let impatience ruin what you’ve worked hard to accomplish.
Understand Your Performance
Your business’s performance plays an important role in your exit strategy. Is your business declining, steady, or growing? Track your metrics from the previous three to five years and identify trends. It’s also helpful to have marketplace reports that speak to the industry as a whole.
Don’t feel discouraged if your business is declining. While it’s true that these businesses are harder to sell, a decline can often be turned around by the right investors.
Clean Up the Books
For a successful exit strategy, you want to be able to present all of the financial information tidy and wrapped in a pretty bow. Take some time to clean up the books. Look at your expenses and start making cuts. Chase down overdue accounts and offer an incentive for quick payment. Clean up all those processes that you’ve let slide as an entrepreneur.
Potential buyers are going to want up-to-date financials dating back at least five years. If you have a timeline of selling within two years, that’s two years in which you can trim the fat and make an improvement.
Choose Internal vs. External Sale
While it’s advisable to work with a broker to manage your sale, there’s another consideration to keep in mind: do you want to sell your business internally? By doing so, you’d be offering the purchase to a manager or employee before selling to the open market.
There are upsides and downsides to this approach. If you have a short timeline (less than five years), then an internal sale may not be feasible. It can also cause disruption in the company culture. On the other hand, having a transition plan in place can improve employee performance, and having someone who already knows the business can shorten the transition time.
By putting together a smart exit strategy, working with the experts, and creating a transition plan, you’ll be able to sell your business gracefully. Whether you plan on retiring or moving onto the next big challenge, honor your hard work by exiting the right way.