Exit Planning – Preparing Your Business For Sale
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If you consider your business to be both a labour of love and one of your most important assets, you are certainly not alone. In Australia, there are nearly 2.57 million businesses actively trading and fuelling the economy, and new entries are registered every day.
But while the high entry rate suggests an influx of new ideas and highly qualified professionals in the economy, it is important not to underestimate all aspects of a business' life cycle - including the exit stage.
While you might not wish to dwell on the moment when you finally let go of your business, having a well-crafted exit strategy in place can help you secure the most returns from the sale and reach your long-term personal goals. After all, one thing is for sure: you will not be owning your business forever!
This guide by the team of business brokers at Benchmark Business Sales is the ideal starting stage for planning your exit strategy.
What Is a Business Exit Strategy? Let’s Cover the Basics!
As a business owner, you might be involved with running every aspect of your business, from ensuring smooth day-to-day operations to boosting the customer experience and crafting a long-term strategy.
What many business owners fail to understand however is the last stage of the business life cycle, the time when you decide to exit. In fact, nearly 50% of those business owners who are looking to sell their business have no exit strategy in place.
So, what is an exit strategy? And why do you need one?
An exit strategy simply refers to a plan by which you will be releasing your business ownership and passing it on to a new owner - on your own terms! Unlike being forced out of business because of sales decline or due to a change in the market, having an exit strategy in place allows you to identify the most convenient time to sell your business and doing so for the right amount of money.
It is important to understand that, while most exit strategies do involve a sale, not all of them do. Indeed, alternative ways to realise an exit include:
- Obtaining a buyout from the management or partners
- Family succession planning
- Sale of shares
- Releasing the control you have over the business, but not its ownership
- Making an Initial Public Offering (IPO)
When crafting your exit strategy there are a wide range of variables you’ll need to take into account, including your personal finances, existing employees, and retention of control over your business.
Ideally, succession planning should form an essential part of your business strategy, reflected upon and adjusted regularly as things change in your business.
Who Needs an Exit Strategy?
If you don’t have any succession planning in place, at some point, you will either pass on your business to successors through your Last Will or you will close down. In any case, you will not be able to remain the owner of your business forever.
The process of passing on the ownership of a commercial entity can either be passive or active.
If passive, it means that you won’t do anything and you’ll let circumstances such as your health, age, market changes, and customer demand determine when, how, and for how much your business will be passed on.
Active on the other hand gives you control. Instead of leaving things to chance, having an exit strategy in place means taking control of this process and actioning your plan at the most favourable moment.
So, who is an exit strategy important for? Essentially, every business owner who wishes to control their business’s future will benefit from succession planning. In fact, selling or passing on your business on your own terms can help you make 50-100% more compared to taking a passive approach!
What Happens if You Don’t Have an Exit Strategy in Place?
Many business owners focus on starting and running their business, without giving much thought to how they will leave their role behind. In most cases, business owners even assume that they will receive an offer for their business at the right time, thus being encouraged into selling their commercial entity.
However, this rarely happens and, when it does, the offer a business owner receives might not even be close to what they were expecting. And, not having a clear exit strategy in place may mean that you’ll have to accept that offer!
Even worse, changes in the market might force you into exiting the business because of voluntary or involuntary liquidation, hostile takeover, dissolution of a partnership, and forced closure. Should this happen, your greatest asset might quickly turn into your biggest burden!
Luckily, having a solid exit strategy in place can help your business enter the market at the right time and compete with the best businesses for buyers to select.
3 Tips for Preparing Your Business for Sale
Once you are clear on the importance of having an exit strategy in place, it is time to start focusing on succession and contingency planning. Here are a few tips to keep in mind.
Start in Advance
Most business owners start thinking about what to do with their business when their health starts to decline, they are approaching retirement, or they become ill. Alternatively, some owners are forced out of business because of the loss of an irreplaceable employee, changes in the market, or shifts in customer demand.
Waiting for any of these events to happen can put you in an unfavourable selling position. By having a succession planning strategy in place from the start you can forecast and mitigate against such events, helping you take control and exit on your terms.
Understand Your Whys – And Find Your Mojo
You might have started your business because of a vision, dream, or goal you had. Now, it is time to be just as clear about what you wish to obtain out of selling a business. And, usually, there is a lot more to consider than just making the most money from selling your commercial enterprise!
Choose the Right Time
When running a business, you probably assume that your company will last forever. However, according to statistics, over 50% of businesses are 10 years old or less, and just over 10% make it to their 25-year-anniversary!
So, knowing when to sell a business is crucial. But how do you know when it’s time to let go of your brainchild?
While this may vary, the best time to sell a business is when sales are peaking and profits continue to rise.
The Mistakes To Avoid When Planning an Exit Strategy
Selling a business can be a complex journey, which isn’t entirely free from dangerous pitfalls. Partnering with an experienced business broker is the best option to preserve your peace of mind and enjoy a stress-free, advantageous selling process.
Here are some of the mistakes to avoid:
- Not understanding the current state and value of the market
- Not keeping records and accounts in order and up to date
- Not partnering with a professional business broker
- Rushing through the process of selling when your morale is low
- Not planning the selling process
- Not maintaining focus after you have put that “For Sale” sign up!
The Benefits of Partnering With a Specialised Business Broker
No matter whether you are thinking about selling your first and only business, or you are a serial entrepreneur: partnering with a business broker is essential to make the most of your business sale.
Here are just some of the benefits of this option.
Access to Premium Networks and Resources
When working with Benchmark Business Sales & Valuations, you will not be entirely outsourcing your exit strategy. After all, nobody understands the intricacies of your business and future goals better than you do.
However, you’ll be able to tap into the specialised knowledge of a team of expert brokers and gain access to the resources, networks, and tools needed to sell your business within 90 days.
The Implementation of a Tried-and-Tested 13-Step Plan
A tried-and-tested 13-step plan based on a 6-element process will offer you a structured framework you can follow to ensure that you are passing on your business at the right time, in the right way, and for the right amount of money.
Some of the key pillars of any succession planning process include getting informed, getting ready for the sale, developing a sales strategy, taking action, and selling the business.
A Customised Exit Plan Tailored to Your Needs and Goals
No matter whether you are running a large corporation or a small local business, every commercial entity is utterly unique - and, so should be the exit strategy you have chosen for it!
With succession planning, you’ll have the chance of gaining control over your business’s future and selling on your own terms. A specialised broker can help you better understand your business’s needs, personal goals, and long-term outlook to craft a strategy tailored to your unique needs.
Speak to a Business Broker at Benchmark Business Sales To Discuss Your Exit Plan
Whether you have just incorporated your business and you require an exit strategy to obtain funding, or you are getting ready to sell, the experienced team of business brokers at Benchmark Business Sales can help.
In the Exit Planning eBook, you’ll be able to find all the information needed to start with your succession planning. Once you are ready to take action, speak to a business broker to get started on your exit plan.
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