There are five basic ways to exit your business.
Any one of the first four exit routes could be attempted after the owner’s death (route 5). Unfortunately, if the business hasn’t been prepared for management, succession or sale then it is unlikely to be as smooth, lucrative and sustainable as you would probably like. It is therefore preferable to put steps in place to exit before this point.
Fortunately, the steps involved in any of the proactive methods (1-3) are largely the same, the main differences being (i) the intent (ii) preparation of the people involved to accept the new leadership, or (iii) preparation of people for their new leadership roles and (iv) finding a buyer if going that route. That might sound a lot, but almost everything else with regards to preparing the business is the same. You’ll want to show historical growth and a future growth plan. Depending on the size of the business, you’ll want to have a management team in place and documented systems and processes. You’ll want to have good repeat business, good customer satisfaction and positive cashflow during the growth cycle. Together, these will make the business attractive to a buyer (so the sale will be more lucrative for you) or they will give the new management a fast start as they take over the business and make the first months, even years, far easier.
So let’s look at selling the business as a specific case. A supplementary reason for considering sale as a specific case is that the value of your business is a useful measure of the success of your business strategy and management. Business valuations are often based on a multiple of profits, the multiple being based on the perceived scalability and sustainability of the business in the future, i.e. the success of your strategy to grow historically and the remaining growth that can be perceived in your growth plans and strategic documentation (as created so far).
A well-managed growing business with good cashflow and few dependencies on critical suppliers, staff, customers or the owner, will sell for a higher multiple. As high as 40+ times has been recorded by our clients. On the other hand, the average owner operated business sold for a multiple of 3.6 times their annual operating profit in 2016, with some selling for less than their annual profit.
Based on these figures alone, it is definitely worth investing time and money on building a saleable business. It might be the biggest pay day you have and even if you don’t sell, you know it is in good shape when you step down as MD and take up the shareholder role as your only involvement. Subsequently, you can monitor the future value of the business as a KPI of the management you entrust with your asset.
If you’d like to find out how much your business could be worth right now, try our online business valuation calculator and when you’re ready, get in touch to put a strategy in place to maximise the value of your business.
To begin with, it’s always better to exit a business on your terms rather than being forced into it. Far better to have a plan to exit the business and do it in an ordered way. The alternative is death, ill health or insolvency which leave all manner of chaos behind.
Assuming you’re looking for a proactive exit from your business your options are:
What does an “exit strategy” mean to you? When should you start thinking about it? What difference does it make to have an exit strategy?
What does your exit look like?
Those are not necessarily easy questions to answer without some context or specific examples. Here are a few: