The essence of any for profit business enterprise is to generate a positive net cash flow over time from business operations for the benefit of the owner or owners.
If the above would be considered the primary goal, then the secondary goal would be to increase the businesses ability to produce more profits and cash flow over time. The more consistently the business can produce positive returns, the more valuable the underlying business is to others.
Ultimately, the strength of the businesses ability to create profits, value, and cash flow is the essence of any profitable and successful business exit strategy.
The most successful business exits will occur when the market is most interested in what the business has to offer and the business itself has demonstrated a strong business model that has taken advantage of the opportunity in the market.
So while the best business exit strategies have a lot to do with a point in time or the right timing when market opportunity and business performance come together, most business exit strategies are more focused on how to sell the business or liquidate the business assets at the retirement age of the business owners.
The odds that this selected point of exit is going to create optional or even above average results is slim.
There are two main reasons for this.
I’ve already talked about the first reason and that being the timing of peak market interest will exist when it exists. While it may be possible in some situations to create the demand for the business during the owner preferred time period, its more likely that larger market forces in play like the state of competition and customer demand at any point in time will significantly determine the potential success of a business sale.
The second reason is that at the point of business sale, the business is not properly set up for sale. There are a number of things that go into getting a business into a sale-able position. Financial statements need to show solid business returns and hopefully growth over the last 3 to 5 year period. The financial statements need to be prepared under a higher level of review than most businesses would typically undertake. There needs to be systems in place that will allow others to believe they can take over the business without a large risk of business transition failure. Core staff and management will not only need to be trained and committed to the ongoing business, but also be prepared to continue on in the event of business sale. Basically, the business needs to clearly demonstrate its value to interested parties through clear and acceptable representation of all critical aspects of the business including marketing, operation, and financial structure.
So when should you start planning your business exit strategy?
If you haven’t already started, right now is a good time, especially if you have any interest in having a successful and profitable business exit.
For an optimal business sale, the business needs to always be in a sales position to take advantage of the opportunities as they arise.
For those businesses where the business owner is committed to exit at a certain time period in the future, its perhaps even more important to create and maintain a sell-able position versus scrambling to make the business look more appealing near the end of the owner’s working life. Once a state of business decay creeps into a company, it can take a tremendous amount of business capital and effort to return the operations to an optimal level of performance and repair.