Why planning how to exit your small business will lead to greater success

The Small Business Coach

The majority of people that start a business today, and in fact, the majority of existing small business owners out there will have not have thought about their eventual exit from their company. And if that’s you, why would you? After all, you fought hard enough to start the business in the first place – you’re not about to leave it anytime soon. But the reality is, that at some point you will leave your business. You might pack it in and move on to something else, you might sell it or you might pass it on to a family member, but you will ultimately leave the business.

And this is important, because if you understand how and when you will be leaving the business, you can begin to plan the journey between now and that moment to get the greatest benefit out of it.  A good example of this is when a small business owner has decided they have had enough of their business. They’re either getting too old, or the business is becoming too stressful or not profitable enough to continue with. The options are available to them are (i) close it down or (ii) sell it on. In 99% of cases, if a small business owner has the opportunity, they will choose to sell it on and take a nice lump sum of cash away with them to invest in another project or to retire on. The trouble is, unless you’ve been planning to sell your business for the last 3-5 years, your business will not be in an optimum state to receive buyer interest or receive a decent sale price. The result is that if you do sell the business, you walk away with enough to buy a new car, when you could have walked away with enough to buy a new house.

If you’re not sure when you want to exist your business, don’t worry too much. There will come a time and you’ll know when it is, when you start to get that nagging feeling in the back of your brain that it’s time to move on. In the meantime, it’s a good idea to plan your business as if you’re going to be leaving it in five years’ time. If that seems like a lifetime away, make it three years. Now you’ve got that figure in your head, it’s time to think about the strategy you need to implement today, to maximise the value and the saleability of your company in 3 or 5 years’ time. So what does a saleable company look like? Here’s a few thoughts:

  1. A saleable company has shown steady, year on year growth for at least three years and the prospects for the future look good

  2. A saleable company is making good profits for the owner(s)

  3. A saleable company does not rely on the owner working within the business for it to function or make a profit. The owner oversees the operation but is not hands on.

  4. A saleable company has valuable assets. That could be a nice website, a strong, recognisable brand, a good reputation, a large database of clients and prospects, strong strategic partnerships, patents or recognisable trademarks or a host of othering things.

  5. A saleable company has plenty of untapped opportunities

Just to expand a little bit more on point 3 above – a company where the owner is actively working inside the company and is integral to its success might sell for approximately 2-3 times annual turnover. Whereas a company whose owner is not integral to the business can sell for 7-8 times annual turnover.

Now that you know those five points, you can start to build a three or five-year plan around them. The first action point though is that if you want to maximise the sale value of your small business in 3 to 5 years’ time, you need to make plans now to remove yourself from the business, put a manager in your place and still make the business profitable. It’s food for thought at least. Following on from that, you’ll need to focus more than ever on doing whatever it takes to achieve favourable profit and turnover figures. We’re going to expand on this topic in future posts and we’ll be covering each one of the 5 points referenced about in detail in individual future blogs.

Has this post struck a chord with you? Would you like to learn more about planning your business exit? Why not book a 40 minute Skype session with the small business coach to discuss your options in more detail? Visit our support packages page for more info and to book.