Failing to prepare for an exit is one of the most common mistakes business owners make. Exit planning should begin on day one. Your exit plan will inevitably change over time. So be prepared to revisit it just as frequently as you revisit other business plans. The following steps can help you prepare your business for a successful exit. Many owners fail to develop an exit plan for their small business, which is a huge mistake. You should develop an exit plan for your business right from the very beginning.
What does the ideal buyer for your business look like? Don’t assume someone will magically appear one day looking to make a purchase. Just a quarter of salable companies actually sell. So maintain an ongoing and evolving list of potential buyers—competitors, strategic partners, and buyers who have previously approached you. Maintain relationships with these potential buyers, and be prepared to talk to them when it’s time to leave.
Create Recurring Revenue Streams
The amount of revenue you have is a major predictor of value. Buyers are risk-averse, and want to see easy streams of revenue. Automatic billing, subscription services, and monthly renewals keep customers—and revenues—coming back. So consider what you can do to build these recurring sources of money.
Standardize Your Operations
Strong businesses can continue operating even without their owners. That’s where standard operating procedures come into play. You must standardize operations. Focus on:
- Executive strategy
- Vision, mission, and core values
- Marketing plan
- Management practices
- Sales procedures and plan
- Operating processes and procedures
- Employee and staff management policies
Focus on the Right Growth
It’s normal for growth to dip from time to time. Ultimately, what buyers want to see is growth over time. Erratic swings can scare them off, so be mindful of how these swings may look if you’re planning major change or growth.
Offer Something Proprietary
Buyers want to invest in a business that offers something they cannot get elsewhere. Patents are useful (though not necessary), as are other forms of intellectual property. Even something as simple as a unique process or novel and effective management style can be a big selling point. So be prepared to set yourself apart, and to show that your unique way of doing things plays a key role in your success.
Good bookkeeping reflects a well-run business. No company gets acquired without clear, well-kept books. Maintain excellent, clear records. If you can’t do it on your own, outsource the task to a respected accounting or bookkeeping company. Regular audits lend credibility to your books, so don’t neglect this key task.
Your business is like your child. And like children, businesses do not thrive when they have a helicopter parent. You’re the leader, not the person who should oversee daily operations. Businesses that are totally owner dependent are less enticing because they present significant risk. So work yourself out of a job and watch value increase.
A Solid Management Team
A dedicated and skilled management team is key to making your business less dependent on you. You need a management team who understands the ins and outs of running your business, and who is committed to quality, efficient, daily operations.
Establish good contracts that encourage managers to stay. And don’t forget to nurture success in employees who may one day become managers. Competitive pay and benefits, a strong company culture, and a supportive management style can ensure your team is highly skilled, and will remain with the business even if you leave.