Posts Tagged ‘Business Exit Strategy’

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.

Click Here To Speak With Business Financing Specialist Brent Finlay

Technorati Tags: business exit plan, Business Exit Strategy, planning business exit, planning business sale, selling a business, selling your business

The Exit Strategy That Keeps Your Bags Packed

One of the many challenges in creating a viable exit strategy for selling off your business interests is how to determine the timing.

Its one thing to say you want to work until your 55 and then sell the business, but it could be quite another to actually have a motivated buyer show up willing to pay your price.

So I propose the evergreen exit strategy whereby the business is always up for sale in a figurative sense i.e. there is no permanent for sale sign sticking out of the lawn or hanging from the side of the building.

With an evergreen exit plan, the business owner has developed the mind set that he or she cannot control when the best time is to sell, so they have to focus on what they can control, which is making sure everything in the business is up to date and supportive of a potential sale, and making sure that the day to day actions of the business are directed towards increasing the overall value of the business.

This mind set is not easy to develop as many business owners are more locked into the thinking that they will sell at retirement, period.

But an evergreen mind set always allows for the ability to consider and react to any opportunities that may arise at any time.

Think of it this way.  If you’re 10 years away from your expected time of exit and a highly motivated buyer comes along for some reason and wants to offer you considerably more for your business than even you think its worth, would you not want to seriously consider any potential offers that interested party is prepared to make?

Even if you develop the proper mindset, there’s still some work that needs to be done to allow you to even seriously consider opportunities that may arise.

First, the business must maintain what I call a “sell-able” state of being.  There has to be a continual effort to make sure that the financial statements are up to date, that all equipment and facilities are in a good state of repair, that regulatory issues or legal issues are dealt with quickly and not left to linger, that employee, customer, and supplier contracts are up to date, that the business has developed sufficient management depth to allow profitable operations to continue once the owner is gone, and so on.

If your business can’t stand up to the due diligence process of the prospective buyer and his or her advisers, then any opportunity that does materialize may just as quickly pass you buy.

Second, the business owner(s) has to be prepared to look at any opportunities quickly as motivated buyers don’t tend to stand still very long and could very well move on to the next best option.

Following this strategy also doesn’t require you to do anything if you don’t want to, or don’t feel the benefit is sufficient to sell.  What it does do is allow you to be as opportunistic as you want to be.

Over a period of 10 to 30 years, the future is going to be very hard to predict.  So when opportunity comes knocking, it may very well be worth opening the door and seeing what’s on the other side.

Technorati Tags: Business Exit Strategy, Business Finance, exit plan, exit strategy, selling a business

Do You Have A Business Exit Strategy?

Don’t feel bad if you don’t have a Business Exit Strategy as you’ll be in good company with the vast majority of small and medium sized business owners out there.

But to be fair,  you can define an exit strategy in a lot of different ways.

So lets go over the ways I would describe it and you can send me your comments if you see it differently.

The first type of exit strategy is to sell your interest in the business when its worth the most to others.  The focus here is to work on increasing the enterprise value of the business and always have the business in what I call a sellable position, so when opportunity comes calling, whenever that may be, you’re ready to take advantage of a good payday.

The rationale is that you can’t predict when a highly motivated buyer will be looking to invest in what you have been building.  So when ever the situation presents itself, you are ready to entertain top level offers.

The second type of exit strategy or approach to business exit is to build up the business to a point where its doing very well in its market and getting close to peak performance where incremental efforts to increase profitability will only generate marginal gains.  The rationale is that the best price for selling an interest is when a business is at the top of its game and has a solid near term track record to back it up.

There is never any guarantees that performance at that level can be sustained, so why not try and sell out when you can paint the most glowing picture?  If a new competitor enters the market, or an old competitor re-invests, or the economy turns, or whatever … will  the spin off effect create a drop off in business, which in turn reduces the business value?  Here, we never assume that business will be good and like any other market you want to sell at or near the height of the market.

While similar to the first strategy, this approach is more fixed on the near term where the owner may give himself up to 5 years to build up the business and get out.  In the first strategy, while a short term sell out is possible, the main focus is to always be ready to sell if the opportunity arises whether that be in 5 years are 25 years.

Following the first two strategies towards exit, you are always treating your business as an active market position that you are prepared to sell for a good profit at any time.

The third and most common approach is to own and operate a business until you reach retirement age or you just get pain sick of it.  The problem with this approach is that its not really a strategy at all in that its far easier to say my exit strategy is to sell when I retire.  Therefore, no work is required right now, especially if you’re 10+ years to retirement, right?

Wrong, or at least I say its wrong.  Why?  Because when that day comes when you decide its time to retire, what are the odds that the business is at or near its peak value, what are the chances its been built up for sale over a series of years to support a solid sale price, what is the probability that there will be a demand for what you’ll be trying to sell?

If you want to take this approach, then in order to get the most out of your business for retirement, you need to be planning the exit strategy years in advance to build a profitable exit versus hoping a profitable exit will happen.

Unfortunately for many, there is no profitable exit and still others that could have been a lot more profitable with some planning and for thought.

If you don’t have an exit plan, its definitely something to start seriously thinking about.

Technorati Tags: Business Exit Strategy

Why Is The Business Exit Strategy So Often Overlooked?

If you’re like most business owners, you or may not have thought about  your eventual Business Exit Strategy.  Lets look at why this is a very common issue with business owners and why it should be given more time and attention. The underlying goals of any for profit business is to generate cash flow, build assets, and create a profitable exit plan from the business some time into the future. While the these goals are clear, the exit related goals do not get a great of attention until the owner is getting near retirement age or after some event causes the owner to need to exit. The result tends to be a suboptimal ending in terms of money actually realized from selling their business interests. Here are the main reasons (from my observations and discussions with business owners) for a lack of business exit planning and the resulting disappointing financial returns. 1.  Business owners do not see a connection between what they’re concentrating on in the business today and their eventual exit.  This is a highly flawed way of thinking as the present and future are closely linked in a number of ways. The actions of today, will impact the potential of any future exit.  If the goal is to build optimal wealth, then all activities need to be ultimately geared towards increasing the value of the business enterprise, which effectively is to increase the value of the business exit.  If the present actions are eroding the potential future exit value, then they should be corrected in order to maximize overall wealth of the owners. 2.  Business owners assume that the process of exiting from their business will be quite straight forward and easy to navigate when the time comes.  Again, in most cases this can be a radically incorrect assumption that can have a disastrous impact on the business owner’s retirement fund.  The reality is that business exits can be hard to manage and in many cased they take way longer than expected to complete and the profit realized is far less than expected. 3. Business owners don’t want to deal with the end of their business ownership, so its easier to just ignore the whole ‘process and wait until they’re forced to deal with it.  This holds true for many individuals that started a business from scratch and operated it for a considerable length of time. 4.  Another misguided point of view many owners have regarding their eventual business exit is that there will actually be a buyer ready to buy at the exact time the owner wants to sell for the price the owner wants to sell for.  This type of thinking can lead to very disappointing results. In reality, a business owner should always be ready to exit and always be directing their business to achieve an optimal future exit, regardless of when it actually takes place. If a buyer is looking for your type of business right now and is prepared to pay a premium for a business in an optimized and sale-able position, then a business that is always ready to exit stands to profit handsomely.  While this particular circumstance may never occur, it also prepares the business for immediate exit if other circumstances present themselves, either personally or professionally. The most common unplanned circumstance I can think of here is the sudden passing of the owner or a death in the owner’s family where the owner does not want to continue with his or her business commitments on a day to day basis.  If the owner is always ready to exit, then this or any other unforeseen circumstance will reduce the potential of a massive discount in sales proceeds caused by a sudden unplanned business exit. If you want to get the most cash out of your business exit, then start building one into your planning, because you never know what the future holds.

Technorati Tags: business exit, Business Exit Strategy, Business Finance, exit strategy