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Thoughts on Successfully and Profitably Exiting Your Business

Jul 18Don Noskowiak

Many successful business owners go to work every day with a tenacious focus on the day to day operations and needs of the customers and their teams. Their sense of purpose and accomplishment is measured by the steady and immediate progress achieved daily and through each passing year. Thinking about exiting your business for most is a distant and perhaps uncomfortable thought. That’s unfortunate for two reasons: 1) If you don’t think about or pick the time to exit, someone or something else will and 2) the best time to think about your exit or to sell for that matter is when you don’t have to. Another critical factor of importance to keep in mind as you execute through your business lifecycle…what’s best for the business (in terms of long term value) and what’s best for you as you operate it are not necessarily the same thing.

In his book, Finish Big (which I highly recommend), author Bo Burlingham identifies a number of common characteristics of owners that had successfully gone about preparing for and exiting their businesses.

Look at your business through the eyes of a potential buyer or investor – What do you have that someone is willing to pay top dollar for? A great management team that can operate the business in your absence; proprietary product(s) or processes or intellectual property that disrupts the current state of affairs in the industry; a diversified customer list;  ample opportunities to extend products into different market verticals; well thought out and documented processes that enhance the financial value of the business. Think about developing strategies or practices that set you apart from your competitors and identify and document opportunities for growth…even if you can’t execute on every opportunity, the future potential is valuable to an acquirer.

Give yourself plenty of time – This is measured in years preferably, not months.  Identify an approximate value for your business today and what the gap is, if any to meet your needs. Involve your management in strategy and listen to their ideas. Identify your most profitable lines of business and develop plans to expand; shed unprofitable customers and/or products. Develop incentive programs that will drive your desired result and get buy in from everyone. Meet regularly to measure progress and make changes as necessary.

Succession-the importance of leaving the company in good hands – This is especially important if you are a predominately owner driven business and it begins with admitting that the owner will not be in the business forever. It takes time to get management in place and develop a culture and plans that can enhance the growth and profitability of the business. Having a team that can operate the business in your absence is not only good succession planning, but will most certainly be required by a new owner and will reward you with a higher price for your business.

Give thought to and come to terms with your responsibilities to employees and investors – This may require a balancing act of sorts…the best deal for you and the investors may not leave the company in place and may cost a lot of the employees their jobs. As with most acquisitions, things tend to change, some immediate and others over time. Merging cultures of acquirer and seller are challenging and not all employees will survive. Being at peace with those decisions that are out of your control are important to successful exits.

Understand who you are selling to and what motivates them – Thinking through your goals and what is in your, your employees and your investors best interests will take time and discussion. Understanding the type of buyer can also drive your decision to the type of exit…maybe ESOP, management buyout or private equity buyer which leave the company and employee base intact, rather than a strategic buyer who intends to fold in your business, but may have a higher price. The best deal that achieves most of your exit goals may not bring the highest price. Knowing this and your buyer’s motivations can alleviate nasty surprises later in negotiations.

Exit to something – For many business owners, their work and passion has defined them for years. Owners who did best came to grips with the emotional reality that it’s time to move on and had an idea of what they would do after the sale.

Surround yourself with those who have been through it before – Working with professionals who have bought and sold businesses before can help you plan through and execute on many of the points discussed above. In addition, knowing what is important to a buyer can help to efficiently identify and prioritize opportunities and resolve problems. When in the deal, an independent party can hold emotions in check and independently advise on the best outcome for all parties involved.

B2B CFO®

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