Creating a successful exit strategy starts with asking these 3 questions

A good outing can prepare a founder for lasting financial well-being or help fund additional businesses. That’s why for countless entrepreneurs, a business exit is part of the long-term plan. Rhett Power explains how to prepare your business for an incredibly lucrative exit.
Most entrepreneurs probably don’t envision spending their entire lives working on a single business idea. By nature, people who seek entrepreneurship tend to like the challenges of starting and building a business, and they often use the rewards of a profitable exit to fund subsequent ventures. Some founders even go out for the express purpose of exiting after a certain amount of time or specific milestones are reached.
Whether you dream of someday selling your business to a bigger company, handing it over to family members, or going public, it’s important to have a plan in place first. A codified exit strategy can inform your decision-making when unexpected scenarios arise, give you a realistic idea of your business’s value, and reveal opportunities to maximize that value. Creating a plan doesn’t have to precede imminent action, but it does improve your chances of getting the best results when the time to act arrives.
Just as a business plan serves as a guide for starting and growing your business, an exit strategy provides a plan for your transition. In order to choose the right exit approach, you will need to consider your personal financial goals, your obligations to investors or creditors, and the extent to which you want to stay involved in your business. You also need to be accountable for the legacy you hope to leave as a founder and the interests of the people who have helped you get to where you are. As you develop or revisit your exit strategy, ask yourself the following questions to ensure that you are ready to succeed:
- What are the strengths and weaknesses of my business?
The benefit to your financial performance as an outgoing founder relates directly to the value of your business, which is in large part a measure of its potential. A company with constantly increasing sales and profit margins, a strong management team, a large and loyal customer base and a differentiated offering in a large market is an attractive target for buyers. A business that does not have these and other important attributes can be seen as a sinking ship.A simple analysis of strengths, weaknesses, opportunities, and threats is a great starting point to determine if your business is on track for a successful exit. As CCS Innovations Marketing Director Bonnie Taylor says, “It is impossible to accurately chart the future of a small business without first evaluating it from all angles, which includes a comprehensive review of all internal and external resources and threats. “
While you know almost everything there is to know about your business, take the time to speak to a wide range of stakeholders, including employees, partners, and customers, to gain additional perspective. Encourage them to be as objective as possible when providing feedback so that you can develop a clear and comprehensive view of your strengths and weaknesses.
- What story am I telling with my business?
A compelling origin story can serve as a roadmap for strategic decision making; a beacon to attract customers, investors and talent; and an intangible asset that can dramatically increase the value of your business. As the time for a date draws near, your story can act like a magnet, attracting people who want to keep it alive and pushing back those whose interests are not aligned with yours.Corey Blake, business storytelling expert and CEO and founder of Round Table Companies, believes that good storytelling can help business owners preserve their legacies and improve the chances of a successful transition. “The more owners create an environment for potential buyers to fall in love with the business, the more likely buyers will think about what they’re doing with that business once the previous owner loses control,” writes- he. “And by telling a great story, the owners invite new buyers to play the leading role in the continuation of this story – the next chapter for the business.”
- Which exit approach has the greatest advantage?
If you are currently a business owner and hope to make a sale in the near future, you need to prepare for a significant increase in competition. Data from the Exit Planning Institute shows that baby boomers hold about 66% of the U.S. business market, and most will be retiring from their businesses within the decade. This means that companies looking for acquisition targets will have an increasing number of choices, which could make it harder to maximize your return.If you are the sole owner of your business and no one in your family is interested in taking it over, liquidating your business by selling its assets could be a fairly straightforward exit strategy. The proceeds from land and equipment sales can be substantial, but you should consider the potential impact on employees, customers, and other stakeholders before deciding to shut down operations.
If you have employees, business partners, or investors who might be interested in acquiring your stake, negotiating a buyout can also be a relatively straightforward (and profitable) option that preserves your legacy as a founder. In general, the earlier you start discussing transitions, the easier it will be to ensure that everyone is on the same page when it comes time to negotiate.
Ultimately, you want to be the one who decides how and when to quit your business. By answering the questions above, you can design an exit strategy that improves your chances of a successful transition, no matter how far off that may seem.
Written by Rhett Power.
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