It is imperative that you get the best, honest advice from a team you trust. External support is vital because you will have an emotional attachment that will not allow you to see the wood from the trees. So, a team of trusted external advisors is essential. This is where Qinesis, with our all-round capability of business, finance & legal support, can help.
How a Business Exit Strategy Works
It’s wise to strategise your exit during the planning stages of a business. Often, business owners include the desired exit strategy in the business plan. There are many ways to exit your business & knowing how you would like to exit guides business decisions regarding management & product/service development.
For example, if you would like to pass on the business to a family member, you should consider giving them a position in the company at least five years before exiting. This will help the family member learn the business systems & values. If you would like to transition your business to a passive or lifestyle business, you could transition the business to e-commerce before you exit. An e-commerce business can potentially be operated from your home & automated. If your business is unable to go down the e-commerce route, processes, systems & digital automation can be developed to enable your exit transition.
A business exit strategy often includes a business valuation, which is a calculated assessment of what the business is worth. Ultimately, the business is only worth what a buyer will pay for it. However, it’s essential to know your business’s value before entering a negotiation. There are several ways to approach business valuation. We recommend that you get an evaluation from an expert rather than a freehand calculation because an expert opinion carries more credibility with the buyer. Qinesis will present you with a valuation of your business so there is no pain later when the potential buyer is far from your valuation.
Additionally, it’s important to build a team of trusted advisors before going through the business exiting phase. A team of professionals such as Management Consultant, a Financial Director, Personal Financial Advisor & a Commercial Solicitor will guide you through the selling process.
Preparing for a Business Exit
Before implementing your business exit strategy, it’s best to start preparing for a business exit at least three to five years in advance. This gives you enough time to determine your personal financial plan, take action to maximise business value, receive an accurate business valuation & build a team of trusted advisors.
Personal Financial Plan
It’s important to consider what your life after selling the business will look like. Will the proceeds from your exit strategy be sufficient to meet your financial needs & wants? Before exiting, consider your composition of wealth. Do you need the business to provide an income stream after your exit or can you live comfortably on the proceeds from the business sale?
Business Value Maximisation
Before exiting & selling your business, there are steps you can take to maximise business value. Strategic buyers will pay more for a business that has well-documented processes in place.
Some of the assets a buyer is purchasing are the business systems you have built through the years. Additionally, buyers want to see a high quality brand & strong customer relationship to help ensure their future success with the business. Aspects such as brand equity, a solid CRM & strong relationship with broad client base start to add up.
There are three main ways to value a business: asset approach, income approach & market approach. The asset approach uses the current value of assets to determine a fair market value & is used when a business’s assets are more valuable than the business itself. An income approach uses discounted cash flow which is a valuation based on anticipated revenue to arrive at a value. A market approach arrives at a business value by using recent sales of comparable businesses.
Ways to Exit Your Business
How to best exit your business depends on your business’s current financial situation. If you have built valuable assets in the business like a customer base, business systems, effective employees & proprietary information, there are several business exit strategies available to you. If you haven’t built a valuable business & struggle to sell it, you may have to liquidate, close or file for bankruptcy.
There are a range of options such as:
- Sell to Unknown Entity
- Transfer the Business to a Family Member
- Sell to Existing Employees
- Sell to Another Owner or Investor
- Get Acquired by Another Business
- Sell the Business & Become an Employee
- Transition to Being a Passive Owner
- Create a Lifestyle Business
- Gift Your Business Ownership Interest
- Launch an Initial Public Offering
- Liquidate the Business
- Close the Business
Exiting a business is often an exciting moment for a small business owner. They get to sell their business for a profit or pass it on to a family member. Unfortunately, some exits can’t be planned for, like those occurring during a challenging situation such as a liquidation or bankruptcy. Regardless of the type of exit, you will ultimately make, we recommend that you plan your business exit strategy at least three years in advance, so the business can be sold for its maximum value.
The above is a synopsis of the options available to business when exiting a business. For more detail & support, please consult the Qinesis team.