Why being Exit Ready makes good business sense
Whether or not you are planning to exit your business any time soon, being Exit Ready makes good business sense.
A business owner often cannot determine the time to exit a business due to health, divorce, economy, industry changes and direct approaches to acquire the business. By having your business Exit Ready, you can minimise the impact of adverse external changes and to take advantage of opportunities quickly.
The key principles of being Exit Ready is that you can exit your business, whether that is an exit from management and/or an exit from ownership, in way to best achieve your objectives.
The methodology of our Exit Ready coaching involves a Now, Where, How approach
- 1. What shape is the business in Now
- 2. Where do the business owners want to take the business (including ownership
- 3. How is that best achieved
Now
- – How well is the business performing now
- – What is happening in the industry
- – How much is it really worth
- – How reliant is the business on the owner
- – What are the main opportunities and risks for the business
Where
Those objectives of the business owners will be specific to their individual circumstances and may include price maximisation, flexibility on timing, working part-time, building of a legacy, passing to the next generation or a progressive sale to staff.
It is not until the business owners have a reasonably clear view of where they want to go, can you plan how to achieve their objectives.
The where aspect of exit planning often involves going far deeper that simply saying “sell the business”. Too many deals have blown up because the vendor self-sabotaged a deal because they were not emotionally ready to exit.
How
The most common focus areas for being Exit Ready are
– Reducing owner reliance – If a business is overly reliant on the business owner, then it is not feasible to sell or transfer or any meaningful amount.
– Pass the due diligence test – If is business is planned to be sold, then a potential purchaser will undertake due diligence on the business including ensuring that all key documentation, licences and agreements are in place, your accounts are clean.
– Recurring revenue – as a generalisation a buyer will pay more for a business with recurring revenue than one with one off projects. What can you do to increase the level of recurring revenues in your business.
– Profits – Regardless of which mainstream valuation methodology you use (capitalisation of earnings or discounted cashflow) the level of profits is one of the major drivers of business value. Are your levels of profits increasing, static or declining? What has been the longer term trend on profitability?
It can be lonely as the business owner, so don’t do it all yourself. Surround yourself with experienced and professional advisers who have your long term interest at heart.