It might seem counterintuitive, but one of the best things you can do when you launch your business is to make sure you know – from day one – how you plan to exit. Planning for your exit from the get-go will help make your company stronger – and more attractive to potential buyers when you’re ready to sell.
How do you plan to make your exit? Will it be through a merger, a sale to a private company, a sale to a private equity group, or an initial public offering? Or, will you pass your business on to your heirs?
At Indian River Advisors we’re committed to helping our clients maximize enterprise value. This means we can help you prepare for selling your company well before you enter into the desired transaction. That’s the premise on which we founded our company. We know that if you pay attention to what drives value in your business, when you want to sell, you will be able to do so at the highest valuation. Developing an exit plan is a crucial part of this work.
According to Matt Roberge in HuffPost, having an exit plan in place from the start “will help you keep the business going in the right direction by constantly aligning with your long-term goals.”
Knowing your exit strategy from day one will dictate how you operate your company. For example, if you plan to get listed on the stock market, that will shape your bookkeeping practices, assuring you follow accounting regulations that you might ignore if the stock market isn’t part of your exit plan. Or, for example, if you plan to pass the business on to your children, you’ll have to think about training them and making sure they are invested in the company from a young age. Like your company’s mission and strategic plan, your exit plan will change over time. It is important, therefore, to review it often – and update it when needed.
Roberge offers several steps you can take to help prepare your business for an exit:
- Sourcing Buyers:Have you identified companies that might be interested in buying your business? It’s a common mistake to assume there will be someone who will want to buy your company when you’re ready to sell. Make sure you keep a list of potential buyers. This list can include businesses that approached you in the past and made inquiries about buying your company, and it can also include competitors.
- Revenue Growth: This one might seem obvious – because who doesn’t want their business to have an upward moving growth trend – but keep in mind that potential buyers will be looking at your growth pattern, too. Where does your revenue come from? Is it subscription-based, leading to a recurring, predictable revenue model? Is your growth steady? Can you explain any dips in revenue – and what you have learned and how you have adjusted? Take the perspective of a potential buyer when you look at your business’s growth. It might change what you see.
- Standard Operating Procedures: It’s imperative that you have detailed, standard operating procedures for your company. And they shouldn’t just live in someone’s head. They should be written down – so that if something were to happen to you, your business can continue to thrive. This includes executive strategy and vision, core values, management practices, marketing plan and strategy, sales procedures, and the day in and day out operative procedures that makes your business run.
- The Books: Keep good books. End of argument. To exit, you will need a good set of books that have been audited or at least reviewed regularly. This will be non-negotiable for your buyer. So start this practice right from day one.
- Management Team: This might sound weird, but you’ll need to make sure it’s clear to your buyer that your company can thrive without you. Part of your exit plan, then, should be how you plan to remove yourself from the business – because if your company is only doing well because of you, either no one will want to buy your business without you, or the buyer will make you stay for a long time after the purchase, which may or may not fit your plans. If you have an excellent management team that will stay with the company and that is committed to the future post-transaction, then this will be a plus for any potential buyer. There are creative ways to do this, including awarding “stay” bonuses if the company is bought that pay out over a couple of years.
In his Forbes article “What’s in a Good Exit Plan?” John Brown cautions against getting so enmeshed in addressing everyday planning that you postpone the task of planning your exit. Waiting can cost you and your company a lot of money, especially when you are unprepared for the unexpected challenges you and your company might face. Planning an exit in advance, Brown writes, “can be the difference between liquidating your company and selling/transferring it for potentially millions of dollars.”
Have you developed an exit strategy? Are you interested in talking with us about what might be the best exit plan for your company? Do you have other questions about how to maximize enterprise value? Please contact Wes Teague at 703.628.4532 or email him at firstname.lastname@example.org to set up a time to talk. Wes has over three decades of experience ranging from commercial and investment banking to senior corporate management. He has led numerous teams in pre-acquisition due diligence and post-acquisition integration. Wes brings to Indian River a focus on strategic initiatives designed to maximize growth and enhance owners’ value as a function of planning and execution. He looks forward to talking with you.