Picture this. A broker enters into a large conference and networking event, and begins talking to the attendees. Inevitably, the conversation is going to turn to asking the broker what they do for a living.
Whenever they answer “buy and sell websites”, the attendees are always quick to jump to replying with “mine’s not for sale”.
This happens even before the broker actually mentions any possibility of them selling their business to an investor. They become nervous because they are afraid that there is going to be a sales pitch incoming.
Even though there is really no pitch on the table, it’s easy to see that they’re scared and worried they’re going to be “sold” on selling their business.
Most brokers aren’t interested in that. They built their business around entrepreneurs coming to them when they’re ready to sell, not talking someone into selling a business that they may still be passionate about.
Brokers know about the hard work, dedication, and sacrifice that goes into building a successful business. They know what it means for entrepreneurs to trust them during one of the most difficult decisions of their life – choosing to sell that business to an investor.
With all of this being said, it’s still shocking how many entrepreneurs simply haven’t ever thought about an exit strategy. They have no idea what happens when they get to a point that they’re ready to sell.
Most entrepreneurs seem to believe that making an exit from their business will happen one day, far off into the future, and that they’ll figure it out once that day finally arrives.
Operating like this is a huge mistake.
In fact, starting your business with an exit strategy in mind has a few different benefits most entrepreneurs don’t think about.
When entrepreneurs start thinking about exit strategies, their reaction typically leads them to dread the actual sale of their business.
Having an exit strategy in place is important. It can be a tool in your toolbox that helps you grow your business in ways that aren’t possible if you haven’t considered the day you decide to sell.
Stop and think about what makes a business valuable and attractive to investors.
They both have similarities, and a great business to buy is a great business to own:
The 4 traits above give you a great guiding light when it comes to making strategic decisions while growing your business, even if you never intend to sell it.
As you start facing the difficult decisions associated with growing your business, you’ll want to focus on the traits that make your business attractive to investors.
In the end, the business is going to be great for you to own based on meeting the factors that investors are interested in seeing.
By figuring out how each of those similarities impact your own business, you’ll create a clear path for growing your business. Additionally, you will be an attractive proposition if you ever do decide to sell.
Let’s give you a quick example of what this means.
We’ll go with a guy named Scott. Scott owns a nice, smaller sized eCommerce business that generates revenue by selling sports gear to customers, schools, and municipalities.
He built his business so that it is easy to run and maintain, and has been growing at a healthy rate year after year.
Like many entrepreneurs, though, Scott isn’t necessarily content with a “good” business. He’s had success before and has his eyes on a much bigger prize.
His newest business attracted the attention of a few private investors that have made financial commitments to Scott. The offers came with the condition that he had to make his own personal investments into the business he was now building.
Since he didn’t necessarily have the funds available, he had to borrow money from his bank. The bank only agreed to give him the loan if he agreed that he would sell his currently successful eCommerce business.
While the situation could be far more complex than that, let’s keep it simple for the sake of this article.
Scott built his eCommerce business around the idea of potentially selling it off one day, which gave him the flexibility he needed for his new venture. Within a few months of selling the eCommerce business, the funds he had promised to his investors were received, and the bank approved his loan.
Like the Scott in our story, most entrepreneurs don’t give a second thought to selling their business until a new opportunity presents itself. When that happens, it’s often too late to sell the business for what it’s actually worth, forcing them to take a far lower offer to move onto a new opportunity.
Scott is the exception to this rule, because he built the business with the idea that he would sell it to an investor one day. This ensured that when that time came he was actually ready.
Reputable brokers see situations like this all the time. Roughly half the clients that decide they’re ready to sell their business are actually 6-18 months away from being able to sell their business for what it’s really worth.
Waiting to sell helps increase the value that the business is worth. Waiting makes their offer far more attractive to investors, increasing the chances of being able to sell the business.
The reasons so many entrepreneurs decide to finally sell are fairly easy to understand:
Each of these reasons presents a different level of sensitivity. However, if you ask an entrepreneur a year or two before they decide to sell if they had actually given thought to selling, most would tell you no.
Hopefully, by now you can see how important it is to have an exit strategy in place, even if you have zero intentions of ever selling your business.
Things happen that are out of our control. When they do, the last thing you want to deal with is trying to hustle up a quick sale for a business that is far from prepared. It’s a recipe for leaving a large amount of money on the table.
However, developing an exit strategy you can fall back on can be difficult to do, and the topic is far too complex to cover in a single article.
As you’re thinking about putting an exit plan in place for your business, you should make sure that it’s customized specifically to your business. Don’t use a general strategy, and ensure that you have involved a specialist that knows what it takes to exit.
If you focus on four main principles; successfully exiting your business without leaving money on the table becomes possible.
● Mitigate Your Risk: To do this, you’re going to need to figure out what parts of your business could be perceived as risks by your investors. Then, develop strategies to help eliminate those risks. It’s good for both your business now, and for your investors later.
● Identify Your Growth Prospects: Always focus on identifying new areas of growth for your business. Investors are going to want to see that they can grow the business when they take over, and you can implement new strategies as you go — long before you sell.
● Make Sure The Business Can Be Transferred: Making sure your business can be transferred requires you to be able to remove yourself from the business without it going under. Make sure that the business can sustain itself, even under new ownership.
● Make It Easy To Verify: Your investor will need to verify what you are telling them – from your revenue to customer relationships. To make it easy for them, keep your records clean and detailed, and keep them all separated from each other.
If you follow these four principles, while you may not necessarily have a fully developed exit strategy in place, your business will be positioned to sell quickly and for maximum value if you ever find yourself in a position where you need to get out from under it.
You are left with a business that’s not only attractive to investors, but is also great for you to own.