Selling your business, transferring it to your kids or getting acquired by a Fortune 500 company might be the furthest thing from your mind if you only recently started your business, but it’s never too early to think about your exit strategy. Steven Covey famously wrote, “Begin with the end in mind,” and he was really on to something. Even if the end of your business is decades away, it’s still beneficial to think about running it like you could sell it someday. You’ll want to plan your exit strategy as early as you can in your business.
What’s Your Ideal Exit?
Maybe you want to grow your business quickly so you can appeal to a big corporation who will then acquire it, pay you a giant lump sum and keep you on as an advisor. Maybe you want to run your business until you’re ready to retire in your 60’s. Perhaps your dream is to pass your business on to your children. Now is the time to really decide which path you’d prefer to take when the time comes.
Your actual exit strategy may change, but having a plan is always a good idea. You also have no idea what could happen to you. Something sudden, like illness or death of a partner, could also alter your path. Still, thinking through your ideal exit strategy gives you something to set as a goal.
Who is Your Ideal Buyer?
Your business is your baby. It will understandably be difficult for you to hand it over to a complete stranger (or even your kids), so think now about what type of buyer you’d prefer to work with. Do you want someone who sees eye-to-eye with your business strategies? Someone who will shake things up and inject new life into your brand? Do you want your legacy to live on or cash out and go start a new business? It’s important to know so that you can train your children or key staff to one day run the business.
What Do You Need to Do to Make Your Business Appealing?
If you want to sell your business or get acquired, your business has to be in tip-top shape. This means you need to start organizing your process and systems. You want your records in order so that you can pass a due diligence test. Any potential buyer wants a clear idea of how your business has done financially.
If you’d like to have enough money from the sale of your business to have a comfortable retirement, you’ll probably need to work hard to get your company debt free and with a great profit margin. The higher valuation you can obtain, the more money you can demand in a sale.
You may need to replace office equipment, bring on new long-term contracts or update your branding so that your company is shiny and attractive to interested buyers. This will also help you command a better price.
Keep the Goal in Mind
Like I said: Even if exiting is decades away, it’s important to keep that end game in mind. It can shape the decisions you make now such as whether or not to reinvest funds in something that will grow your business. If you plan to have your children as your successors in the business, start training them now but demand that they go work for someone else during their career so they can bring fresh ideas back to the family business. (Hey, I’m working on my nine year-old so he can take over my company one day! They’re never too young to learn what you do!)
Work with your accountant so that you know what the valuation of your business is annually. You never know when a potential buyer could show up. Keep that future business owner in mind by making decisions that will help him or her once they take over your small business.