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Exit strategy

When is the best time to create an exit strategy from your business? After you start making really good money? Perhaps after your business is well established and you feel comfortable about leaving? When you finally get the right offer to sell it? Two years prior to leaving your business?

I will tell you the best time to create an exit strategy is BEFORE you launch your business. That’s right before you try to grow your business. Even before you make your first dollar. Why? Because at some point you’re going to either sell, retire, hand down to your kids or just plain shut the doors.

Why is this so important? Although most small business owners think they will do it until they die you still need a strategy. An exit strategy does a couple things. First it gives you some light at the end of the tunnel so to speak. Second it actually gives you structure within your business as you have to design and work towards that end goal.

Most business owners actually like what they do but there comes a time every now and then that the daily stresses and struggles make you feel a bit frustrated. When you don’t have that light at the end of the tunnel to look forward to it can be pretty miserable. An exit strategy gives you that hope and road map that will keep you going knowing that in only X amount of time you’ll be comfortably out of your business.

If I know I want to sell my business in ten years and I want 3x earnings and thus, knowing I need 3 million to comfortably retire, my business needs to be generating 1 million per year in the worst case scenario. Now this would actually be a rare case at these numbers unless you have a heck of a well developed system and your business is in high growth mode.

Everyone has their price as the saying goes and you need to know yours. There’s a lot to consider when you’re projecting out twenty years or more. Sometimes It’s better to focus on a number your business needs to be generating then what you’ll need to move on. This way if you experience tremendous growth in the first 5 years and surpass all of your numbers the time may be right to sell and move on or readjust your exit plan. I find most entrepreneurs are seldom driven by money so putting the focus on business success and the numbers it creates give them a more sustainable drive to hit those goals.

Another consideration when planning an exit strategy is to ask yourself “Why would someone want to buy my business?” I hate to be the bearer of bad news but it won’t be because ‘You think so’. Or because you did really well with it so why won’t someone else? Buyers for a business are looking for leverage. They’re expanding their similar business perhaps. They may want to break into a new market and need exposure.

When someone is looking for leverage they are not looking to recreate a business. They want plug and play and are willing to pay top dollar for it. Your business needs to be self-sufficient. What I mean by that is all the systems and processes are in place and you as the owner can literally leave for one year and the business will be more profitable when you return and not in ashes. If a buyer is looking to break into a new market they may settle for a little less efficiency to obtain the market “real estate” or foot in the door. You’ll get less money for it than the previous scenario but if you haven’t done the work you’re not going to get paid for it. These buyers will also strip and rearrange your business and it may become almost unrecognizable to you as the former owner.

So the need to understand when and how to leave your business is very important. Another consideration is HOW you leave your business. Most small business owners don’t get the opportunity to just walk away with a boatload of cash. Oftentimes they are required to stay on in a consulting fashion training the new owners on operations, etc. This can be very burdensome and oftentimes the agreement is contingent upon successful turnover and income generation for the sale to be final.

If you know your goal is to exit in a certain amount of years you need to build your business accordingly. You need to have systems and processes in place that can be duplicated by anyone who walks in so you can walk out. You need to have daily operations not be your responsibility but a system. You need to focus on growth of the business not day to day operations.

Systems, processes, designated roles and training manuals to accompany them make a business run smoothly and efficiently which in turn generates higher profits and becomes more attractive to potential buyers.

We created a business to have an income for ourselves, feed our families and hopefully sell that business for a large lump sum someday. Even if you never sell, imagine the life you can lead if you’re not chained to a desk or still swinging a hammer at 55 years old. Systems and efficiencies can earn you more profits without spending more money or increasing sales. You may already think you’re being paid what you’re worth so let’s get that business running smoothly and efficiently so it can increase your income to do more of what you love.

No matter where you are in your business it’s never too late to create an exit strategy. Take a step back and look at your business and see how you can create this exit strategy to benefit you and your business. If you’re new in business you have an advantage to be sure. Do not delay in creating your exit strategy; it will make a difference in your ability to scale your business faster and reach your goals all the way across the board

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