02 Dec All About Exits: How to Build an Effective Exit Plan
After several years of successfully operating your business, you likely have a keen sense for what works when it comes to driving growth. In fact, you may have discovered that many of the initiatives you introduced to improve efficiency and increase revenue have also added value to the business as a whole. Building a business with an exit in mind is always advantageous, particularly if you are at or nearing an important benchmark in the life cycle of your company. Moreover, executing an effective exit strategy is critical to achieving your goals, whether you want to launch a new venture, retire early, or simply spend more time with your friends and family.
The first step in achieving a successful exit is developing a plan that takes your goals into account. Laying the groundwork in advance will empower you to time your exit at the optimal moment – usually 18-24 months prior to the anticipated exit date. That date, as well as the lifestyle you hope to lead after stepping away from the company, will inform the actions you need to take prior to executing your plan.
While there are no “one size fits all” solutions, an effective exit strategy typically includes the following:
Your anticipated exit date is derived from your long-term goals. For example, if you want to work until retirement, then your plan should go into effect when you near retirement age. In the U.S., most people retire at age 60 so your timeline should start at age 58.
On the other hand, if you want to transition into a new venture, it would be prudent to enact your exit strategy as soon as possible to maintain whatever competitive advantage you may have in the business.
Victory lies in preparation. Whatever your benchmark may be, it is critical to establish a clear timeline in order to expeditiously achieve your goals in the exit. Consequently, you should execute your exit plan as soon as you reach that benchmark and have enough capital to finance your new business or retirement.
You probably wouldn’t quit a job without a new opportunity in place; it’s the same with exit planning. In addition to the money you have saved, you need to net enough from the sale of your business to secure your financial future until your next endeavor pays off, or if you are retiring, to fund the lifestyle you want to enjoy post-exit.
Of course, you must also plan to cover any outstanding debts and satisfy all personal obligations before receiving the balance of the proceeds. This responsibility may preclude the satisfaction of your long-term goals and may require significant reframing of your objectives at sale.
Depending on market conditions and the valuation of your business, you may need to weigh the timing of your exit with the potential to break even or walk away with a modest profit rather than owing money even after the business changes hands. In any case, it is highly recommended that you use a professional Mergers and Acquisitions advisor to help you manage the process. They can offer insightful financial advice and help secure the maximum value for your business.
The business’ valuation is the single most important factor in your exit plan. It is the starting point from which negotiations begin. It is important to remember that buyers are not going to take into account any of your own personal financial goals but instead will be keenly focused on acquiring your business at a price which they consider to be below value. A qualified M&A advisor can help you with these negotiations, given that they routinely engage with buyers for other clients.
There are things you can do to add value to the business, but again, you must weigh the current valuation against the possibility that you could spend years waiting for a better price. Expect a compromise and write out a realistic bottom line that reflects the absolute minimum you will take. Your intermediary can work closely with you to determine what that number is and how to get the most out of a sale.
Your exit plan may change slightly as your valuation increases or decreases – that’s perfectly okay. If you are aware of this, you can learn to anticipate the ebb and flow so that eventually, you can deploy strategies designed to increase valuation even under less-than-ideal economic circumstances.
Overall, exit planning is about outlining your goals and determining how best to achieve them in a sale. It is an ongoing process that demands time and attention, but with an effective strategy in place, you can set the stage for a smooth and seamless transaction. A professional M&A advisor can assist you in this process by highlighting opportunities to grow the business, add value, and can even represent you in the sale.
Global Wired Advisors is here to help you sell your Digitally Native or FBA business, but we are also available to discuss your exit plan with you and answer any questions you may have. We are Mergers and Acquisitions specialists with over 50 years of combined experience in selling online companies. Try our Free Value Estimation Tool to see what your business is worth.
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