Plan for Your Profitable Exit Early
If there is one thing I can tell you after being in business for myself, it’s that I could never go back to the traditional “9-5” job. How about you?
Well if you’re with me I hope you’re starting to plan out your exit strategy early.
I can hear you now “My exit strategy? I’m not ready to retire OR I’ve only been in business ten years; why would I be planning for my exit strategy already?”
Two things on that front:
- You don’t have to retire to exit your company; you may want to sell your company and build a new one or you may want to take on a passive role and collect money while lying on the beach somewhere.
- You want to identify your exit strategy now so you can build your company in line with that endgame then it’ll be ready when you are.
Now back to the point at hand, do you want to go from running your own business to being an employee of sorts for someone else the last 2 years of your “working” life?
Did you know sales contracts for service-based businesses typically include a performance clause?
This means you’ll promise to stay with the company in some capacity for the next 2-3 years while maintaining or reaching a certain revenue level, profit margin and/or client retention rate.
Mind you, during this 2-3 year period you are no longer in charge because you’ve sold the business; the new owner is now your “boss”. Not to mention, if you don’t reach the performance goals the sales price goes down (if the sale goes through at all). You’ll be back to reporting to someone else.
The thing about building your business so it sells outright, with no performance clause, is it positions you not only for a profitable exit, but it also helps you create the freedom you want now – the freedom you hoped for when you started your business.
Did you know only 30-40% of businesses put up for sale are actually sold?
There are a few reasons for that, but today I only want to touch on one, that is the value of your company. There is typically a wide discrepancy between what you as the business owner feel your business is worth and what someone is actually willing to pay for it – its true value.
So what can you do to narrow this gap?
Here’s a tip: Build a scalable model that will remove you from the key equation in your business!
Easier said than done when you own a service business and your responsibility is to serve, right?
I’m not saying it’s something that happens overnight, but it is doable and it doesn’t have to be complicated; it is, however, why you should start planning now.
Here are a few things that a perspective buyer would look at:
- What is your role in the company?
- What does your day look like?
- How easy is it for someone to step in and replace you without working as hard as you do in the everyday?
- Do your clients correlate you to your company (e.g. are you your company’s brand? When they think of your company, do they think of you as one in the same?)
- Do you have recurring income coming in that will continue?
- What’s been your growth rate over the past 5 years?
- Do you have a cash management system in place or are you bleeding cash?
- You may be earning 6-7-8 figures in top line revenue, but what are your bottom line profits and how much are you paying yourself?
- Do you have systems in place that minimize your business risk and maximize efficiency?
- Do you have processes that are easy to follow and repeat?
- What is the make-up and responsibilities of your team?
If you’d like to see where you fall on the “getting ready” spectrum, take our Profit or Plateau Assessment to determine what your next 3 moves should be to build sustainable growth (resulting in increased value) and the pitfalls to avoid: http://quantumscalingstrategies.com/profitquiz