An exit strategy, which can spell out how a founder plans to separate from a company, affects everything from business development to liquidity. A solid strategy can smooth the complex process of selling or transferring ownership of a business. Meanwhile, a poor strategy can cause delays and financial losses. By avoiding common mistakes, you can transition out with minimal hassle.
Waiting Too Long
Although it might seem counterintuitive to plan your departure from a business before it gets off the ground, an exit strategy should be in place from the start. When you wait too long, you risk losing the ability to control the separation. Market factors, such as recessions and sector slowdowns, can force you into a sale before you're ready.
Valuing the company is an essential part of an exit strategy. Many businesses make the mistake of trying to maximize valuation to an unreasonable level. If the market shifts or stocks crash, however, an inflated valuation can cause greater losses. By opting for a more conservative number, you expand your acquisition options and take care of your investors and employees. On the other side, be wary of underestimating your company's value. Consider multiple valuation options that might increase overall profits, including selling off parts of the business individually.
Failing to Understand Buyers' Needs
Buyers acquire companies for a variety of reasons. They may want to combine operations with another company, keep the business running as a standalone unit or dissolve it for assets. One of the most common mistakes a business owner can make is failing to consider the needs of target buyers. Without that information, it is difficult to position the business to enhance the chances of a lucrative sale. For example, if you plan to sell the business as a functioning unit, your exit strategy might include initiatives to make the company more attractive, such as technology upgrades, filling a skills gap or market expansion.
Failing to Understand Your Own Needs
Your own financial and personal needs are a key part of the separation process. Failing to take these requirements into consideration can lead to heartache and stress down the road. The things you want from the process depend on the business and your plans. If you want to pass the company to a family member, your exit strategy might include plans to stabilize the leadership and operations before the transition. Sole business owners might be more concerned with getting the best purchase price. Don't forget to consider the emotions surrounding a sale. If you've invested a great deal of time and love into a business, do you want to sell to someone who plans to dismantle the company and let go of the employees? Deciding these factors in advance can streamline the process for everyone involved.
Separating from a business can be a stressful and time-consuming process. By planning an exit strategy from the beginning, you create a smoother and more profitable transition for yourself, your investors and your employees.
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