If you don't have an exit plan for your small business 12-36 months in advance of selling, you won't maximise its value. Don't settle for less… follow these tips.
Most people simply don't contemplate exiting the business when they're just getting started, or even after they're well established. Most business owners figure the end is a long way off, and anything could happen before then. But it's these unpredictable happenings that make having a business exit plan in place even more important.
You should make more out of selling your business than you do in annual company profits – but some small business owners have to settle for less because of a lack of planning.
Many do not think strategically about their exit from the business and just decide to sell when they have to or wait until it is too late and the business is already failing.
You can maximise your small business valuation by planning well in advance of selling.
Most small business owners do a great job of establishing and building their business but they are disappointed when it comes time to reaping the rewards!
Unfortunately, many business owners who spend years building their business will receive only a fraction of what it is actually worth.
Sometimes, if ownership is transferred to a family member, they see their legacy destroyed through lack of preparation and planning.
Sadly, many business owners reach a time when they want or need to sell, only to find that their business is worth very little, there is literally almost nothing to sell, and there is no buyer anyway!
This is what's known as the "tragedy stage."
You want to avoid being forced to suddenly sell your business during the "tragedy stage".
This is where a business owner has no real plans, has low energy levels, is losing passion and motivation, and just wants to get rid of their business.
Business sales have started deteriorating and the owner wants out. Business owners in this situation have often overlooked their exit strategy until the last minute.
It's understandable but regrettable.
Whether you're getting ready to launch your dream start-up or are knee-deep in daily operations, the last thing you're thinking about is the day when it all comes to an end.
But that day does come and you'll want it to have all been worth it.
As difficult as it may be, you need to start planning your exit from the beginning of the business and be one of the few who maximise their sale price.
An exit strategy is a key element of any business plan. It will help you maximise the value of your business and minimise the pain of closing it down.
In fact, a well-planned exit doesn't just set you up for the day you sell up or retire. By designing your business around maximising the exit price, you're effectively implementing value- and profit-boosting strategies that can start benefitting your business today.
The ideal stage to sell your business is after positioning it to maximise value, personal wealth and personal wellbeing.
You can rarely reach this stage by accident. You need to plan for it.
Research suggests that there is a high probability that developing an exit plan 12-36 months prior to selling the business will dramatically increase its value and the ultimate net proceeds for the business owner.
Key considerations for an exit plan
Your exit plan should consider market, as well as personal and business cycles matched against personal goals and expectations.
It should be built into your overall business plan, aligning financial and personal goals to ensure you reap the maximum reward from all your hard work.
You may find that it's best to work with an advisor, who can:
- Assess your business in its current state to uncover where improvements can be made to achieve greater profitability and sale value
- Examine the various options available for exiting and the range of possible outcomes
- Advise you on business valuation and the most advantageous time to sell
- Provide advice on tax efficiency and possible methods for reducing tax payable upon sale
- Provide a structured plan towards retirement or business sale that can help you achieve greater profits and efficiency straight away
- Help you maximise sale proceeds by assisting you with the negotiation process
- Better prepare your business for an unexpected or urgent need to exit
By carefully planning what business needs to look like in case the need to exit arises quickly, the exit price you can achieve will be higher, the speed at which you can exit faster, the process easier to manage, and the outcome more in accordance with your goals.
You will also have created a business that each year will provide:
- Better profit
- Better clients
- More sales of the kind you want most
- Reduced obsolescence of stock and sales products
- Reduced industry and market risk
- Stronger cash flow
- Greater systematisation (things continue to work well when you're not there)
- Stronger brand or company recognition
- Higher value
- Freedom to enjoy what really matters to you
No matter what stage of life your business is in, an exit planning specialist will help you create a business ready for exit on your terms and a at a better price, and avoid the tragedy of exiting your business at low or nil value.