{"id":19778,"date":"2023-11-03T03:09:01","date_gmt":"2023-11-03T03:09:01","guid":{"rendered":"https:\/\/mysourcefunding.com\/startups\/6-actionable-steps-for-preparing-your-exit-strategy\/"},"modified":"2023-11-03T03:09:03","modified_gmt":"2023-11-03T03:09:03","slug":"6-actionable-steps-for-preparing-your-exit-strategy","status":"publish","type":"post","link":"https:\/\/mysourcefunding.com\/?p=19778","title":{"rendered":"6 Actionable Steps For Preparing Your Exit Strategy"},"content":{"rendered":"
\n

Chad Lusco, CEO <\/em>P3 Services<\/em>.<\/em><\/p>\n

As a business owner, you accept there’s no such thing as \u201ctwo weeks\u2019 notice.\u201d Grappling with a transition or succession plan can be challenging and emotional, but you\u2019ll need to prepare an exit strategy well in advance to maximize your ROI and ensure the continuation of your company. You should plan this strategy at least three to five years in advance (ideally ten years) with the understanding that your goals and business may evolve over time.<\/p>\n

1. Identify your expectations.<\/h2>\n

Every business owner needs an exit strategy, but not all exit strategies are right for everyone. You\u2019ll need to spend some time reflecting on what’s right for you. There is no right or wrong answer; your exit strategy should allow you to meet your goals\u2014both personal and financial\u2014and your business’ needs. Each strategy has its unique set of advantages and disadvantages.<\/p>\n

Consider these common types of exit strategies:<\/p>\n

\u2022 Legacy<\/p>\n

<\/fbs-ad><\/p>\n

Keeps the business in the family by choosing a successor, but can often come at a discounted price to the seller and substantial debt service to the buyer.<\/p>\n

\u2022 Merger And\/Or Acquisition<\/p>\n

M&A (via private equity or investment group) may benefit the seller with a higher purchase price, but the business may become part of a larger entity or investment portfolio with a new set of procedures or strategy.<\/p>\n

\u2022 Strategic<\/p>\n

One company (typically a direct competitor) purchases another to acquire its talent and\/or book of business, often with the hopes of finding synergies, efficiencies or cost savings through consolidation.<\/p>\n

\u2022 Friendly Buyer<\/p>\n

Involves selling your stake to a partner or investor; often involves minimal disruption to the business, but may not achieve the highest purchase price possible.<\/p>\n

2. Strengthen your management team.<\/h2>\n

In my experience working with small business owners, I\u2019ve found the most common stumbling block is the owner. Often, the owner handicaps their own business by hoarding decision-making ability and failing to establish clear roles and responsibilities for team members. This creates bottlenecks for scaling the business, and the dysfunction becomes far more evident when an exit strategy is considered. Extricating the owner from day-to-day affairs is more difficult in a centralized power dynamic.<\/p>\n

To strengthen the management team, begin by providing clarity on your team members\u2019 roles, responsibilities and decision-making authority. It\u2019s also essential to define the organizational structure and key performance indicators (KPIs) for all team members. Once this is accomplished, the next step is to plan for the gradual transfer of responsibilities to prepare the management team for the transition.<\/p>\n

Speaking of transferring responsibilities, you may need to choose your successor, particularly if you\u2019re planning an exit strategy that doesn’t include long-term seller involvement. Selecting a successor often proves challenging if the candidate is a family member or long-time acquaintance. Be sure the individual you pick is the best suited in terms of skills, experience, education and temperament. It\u2019s often a good idea to turn to an advisory board or consultant for neutral guidance.<\/p>\n

3. Streamline your operations.<\/h2>\n

Are there any operational inefficiencies to iron out or unnecessary expenses to eliminate? Look for ways to improve processes, and be sure to resolve any pending or potential legal liabilities, as well as any outstanding debts.<\/p>\n

Some operational challenges I commonly see are a lack of systemization and an inability to provide in-depth data and insights into the business. You\u2019ll want to be able to pinpoint data that potential buyers will be interested in\u2014from year-over-year (YOY) growth to the number of locations served, new customer growth, expansion of existing customer accounts and relationships\u2014the list goes on.<\/p>\n

4. Clean up your financials.<\/h2>\n

Before engaging with potential buyers, ensure your business has clean books that follow generally accepted accounting principles (GAAP).<\/p>\n

Additionally, you\u2019ll need to have a clear picture of your numbers\u2014both personal and corporate\u2014so you can head into negotiations with a fair asking price and use your financial performance to justify it.<\/p>\n

Be warned, a common mistake entrepreneurs make is running their company so lean that it lacks a strong foundation. Efficiency is important, but running on a skeleton crew can create instability. Avoid trying to squeeze out every dollar of profitability leading up to the sale, as this will restrict scalability and create a questionable succession plan for a potential buyer.<\/p>\n

5. Identify your differentiators and key selling points.<\/h2>\n

Treat potential buyers as you would potential customers and consider what sort of sales pitch you might give them. Ask yourself the following questions:<\/p>\n

\u2022 What target market does your brand appeal to?<\/p>\n

\u2022 What are the unique attributes of your products\/services\/brand?<\/p>\n

\u2022 Do you have a proprietary method?<\/p>\n

\u2022 What\u2019s your brand heritage\/story?<\/p>\n

\u2022 What technologies\/patents do you have?<\/p>\n

\u2022 Do you have any endorsements or awards?<\/p>\n

Identify your most compelling differentiators and use them to create an elevator pitch. Then, build on that elevator pitch to develop an appealing presentation for potential buyers.<\/p>\n

6. Do your due diligence.<\/h2>\n

Lastly, do your due diligence. Get all of your relevant organizational and legal documents organized, including:<\/p>\n

\u2022 Vendor and customer contracts<\/p>\n

\u2022 Permits\/licenses<\/p>\n

\u2022 Financials<\/p>\n

\u2022 Audits<\/p>\n

\u2022 Employee and payroll backup<\/p>\n

\u2022 Insurance information<\/p>\n

\u2022 Vehicle and asset lists<\/p>\n

In addition, consult a CPA on how to optimize your tax strategy for the sale (don\u2019t expect buyers to offer guidance on your tax situation). Your location, company structure and the structure of the sale can have significant effects on your sale price and valuation.<\/p>\n

Preparing Your Exit Strategy<\/h2>\n

If these steps seem overwhelming, remember that you should have at least five to ten years to execute them. If you\u2019ve held exit strategy planning in abeyance until you\u2019re just about ready to retire, you may want to consider staying at the helm for at least a few more years. This will allow you time to plan adequately for a healthy transition that allows your company and talent to continue to flourish. Your company is your legacy, after all, whether or not it stays in the family.<\/p>\n

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?<\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Chad Lusco, CEO P3 Services. As a business owner, you accept there’s no such thing as \u201ctwo weeks\u2019 notice.\u201d Grappling with a transition or succession plan can be challenging and emotional, but you\u2019ll need to prepare an exit strategy well in advance to maximize your ROI and ensure the continuation of your company. You should […]<\/p>\n","protected":false},"author":1,"featured_media":19779,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[77],"tags":[],"class_list":{"0":"post-19778","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-startups"},"yoast_head":"\n6 Actionable Steps For Preparing Your Exit Strategy | Brandiary<\/title>\n<meta name=\"description\" content=\"Chad Lusco, CEO P3 Services. 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