Repeatedly, when the topic of exit planning is discussed in conversation with my business clients, they tell me they are not ready to sell their business. In which I reply, “the moment you started your business, your “exit planning” should have started. I get the raised eyebrows.
Let me explain why this happens; The generic term “exit planning” has taken on a meaning of, “when I want out of the business and when I am ready to sell.” Advisors use the term as though it was a noun, such as a piece of property.
To me “exit planning” means: “Actions taken by an owner to create the highest potential value for their company, so when the need arises in which they wish to sell, or make a financial transition with the company they are prepared”.
I liken my reasoning to owning a home, keeping it up to date, and fixing problems as they arise, knowing at some point someone may knock on the door and make a great offer to buy the home. The great offer is the highest potential value for the home.
If on the other hand the homeowner let the home deteriorate over time, under the same type of scenario the offer the owner would have received would have been much lower, if any.
If an owner chose to use my definition of “exit planning,” they would start at once to implement the value drivers needed for a company to create the highest potential value for the future. Creating these transferrable value drivers take time, in many cases years to implement.
There are 8 Value Drivers:
- Financial Performance: Your history of producing revenue and profit
- Growth Potential: Your likelihood to grow your company in the future and at what rate.
- Structure: How dependent is your company on any one employee, customer, or supplier?
- Valuation: Can your company control cash flow?
- Recurring Revenue: The quality of automatic revenue you collect
- Exclusive control: How are you differentiated from competitors in your industry?
- Customer Satisfaction: The likelihood customers will re-purchase and refer your company.
- Are you needed: How would your company perform if you were not able to work for three months?
As you can see there is a difference in the term “Exit Planning.” Therefore, I suggest, to everyone who opens a new business that they should start their exit planning at once, so all the value drivers needed to increase their company to its highest potential value will have time to create the value.