I want to see bucketfuls of cash at the end of running my business…how about you?
You may be so busy with your business not be thinking about its long-term future, but what is your end goal with your business? Do you have an exit strategy? Having an idea for what will happen in your business in the future is just as important as your business plan, marketing campaign, and balance sheet. An exit strategy doesn't mean your business dies or goes away. In fact, you want the exact opposite. You just need a plan to scale your business to get yourself into the best possible scenario to put your business up for sale one day.
Let's walk through it step by step on how to develop an exit strategy.
Evaluate the Market
We all know that market conditions can change overnight. However, continually factoring market conditions into your exit strategy will help you gain more return at the end of the road.
For instance, if your industry is expected to grow by 12 percent over the next 10 years, you know that you could sell your company to another person or entity, or that you could possibly go public with an IPO. It’s best to see healthy industry growth when you’re designing an exit strategy.
Maybe the opposite is true. Your industry is beginning to decline. In that case, focus on finding ways to make your business more appealing — not only to consumers but also to potential buyers. Maybe you could expand to diversify your product line, put a new spin on an old idea, or capture a new audience segment.
Search Your Soul
It sounds silly, but you need to do some soul-searching before you prepare an exit strategy. What do you want to happen to your business or your employees when you're no longer willing or capable of running it?
Some people want to keep the business in the family. You might have a child or other relative who wants to take over. On the other hand, you may wish to keep it in the family, but your progeny is not interested.
If you're looking for the greatest return, you'll probably want to sell your business. Ask yourself if you're comfortable with that prospect. If not, you could sell a majority ownership and retain some level of minority ownership or decision-making power as part of the terms of the sale.
Save the Date
Figure out how much longer you plan to work so that you can set a date for your eventual exit from your current business. When do you want to retire, sell the business, or otherwise move on to the next thing in your life?
You might not have this date yet, but keep a ballpark range in the back of your mind. For instance, if you're currently 45, and you want to keep the business running until you're 60, you won't have the exact date picked. However, you'll know approximately when you'll take your bow.
Your preparations depend on your exit strategy.
If you're interested in opening up your business to mergers and acquisitions, for instance, you'll want to make your business as attractive as possible. Get rid of debt, avoid taking on new investors, and pay careful attention to sales forecasts and growing your profit margins consistently each year.
An IPO takes even more planning. It's a largely bureaucratic process that demands significant resources, but it might prove valuable if your company can scale. Plus, you have the option to retain an ownership level of shares.
In terms of passing on your business to family, start training the eventual entrepreneur. Help him or her learn the business inside and out so you'll feel comfortable stepping out from behind the wheel eventually. Some family businesses require children of owners to work outside the company for at least two years before coming back to work for the family.
I love my business (and I love working), but I know there will come a time when I want to travel, spend time with family, or otherwise enjoy life without running a business. I encourage you to develop processes and systems, and consistent business practices so that when it’s time to build an exit strategy so you're not caught off-guard, and can be strategic about your decisions and succession plans.
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