How To Plan A Successful Exit For Your Business

Remember, the best way to make an exit more successful is to make the company more successful.


Photo: Daniel Faloppa, Co-founder of Equidam; Source: Courtesy Photo
Photo: Daniel Faloppa, Co-founder of Equidam; Source: Courtesy Photo

Is it difficult to sell your business? Not as difficult as you may think. The amount of equity capital is rising and there are plenty of acquisitions. However, the competition is higher and, to get the best deal, it is better to prepare for it.

So, how do you achieve a successful exit?

An exit is successful when you manage to convey and finalize a transaction that is based on the correct value of your company.

This does not mean entrepreneurs should look to oversell. Instead, it means that you should value a company at its present, future and full potential. If you don’t do this, you are underselling, which allows a newcomer to take over, make changes and maybe even flip it before the ink has even dried on your contract.

Thankfully, there are actions that can be taken beforehand to prepare a company for sale and allow its founder to realize the profits of its full potential. Of course, the longer you prepare for an exit, the more refinements you will be able to undertake. Yet, there are short-term actions that can be taken months in advance.

Here’s a look at exit planning strategies every entrepreneur should keep in mind:

 

  1. Create a company that succeeds without you.

    Create a company that can function and succeed even when you are out of the picture. This is often overlooked and easier said than done. Many entrepreneurs underestimate how much of their company’s success is tied to them, personally.

    A founder may hold all of the relationships, developed a reputation of trustworthiness for themselves (that is not reflected on the company as a whole). Sometimes they just do most of the work that nobody else can do. If you have future plans to remove yourself from your company, it’s better to iron out these things first.

    Make sure to pass your connections to somebody who is going to take the reins. Make sure your knowledge is transferred. Put people in a position to thrive in doing what you did, maybe even more than yourself.

  2. Invest in your brand.

    A prospective buyer will not know everything you know about your business. To attract a qualified business buyer and properly present your company’s maximum value, invest in your brand. Again, if you remove yourself as a founder, and the company becomes a stand-alone, it will not be able to rely on your reputation.

    Your company must have a stand-alone reputation, and that is its brand. For example, consider renaming your company if it is closely tied to your own name (and has yet to build any brand equity). Next, start communicating at a company level instead of personal level, like “We at company X do this” instead of “I do this.” Reinforce two separate brand identities.

  3. Increase operational efficiency.

    Do you know how most Private Equity Funds make money? They buy into companies, take actions to improve efficiency and then sell their participation at a premium, usually a hefty premium. So, why not take some lessons from them and take those actions before somebody else does?

    Of course, efficiency can never be 100%, but sometimes, especially as a business matures, certain things get overlooked and grow into easy-to-eliminate inefficiencies. Slow computers, moving the factory closer to the marketing office, replacing costly and outdated equipment are a few areas of note.

    These things are usually delayed actions because they do not bring in immediate revenues and they are costly. However, they will bring the company closer to its full potential, thus increasing the likelihood of a potential exit.

  4. Track value improvements.

    All of these actions are fine, and intuitively they lead to a better exit outcome. They are also good general practices if you are running a company and have not thought about an exit. However, it is much easier to improve things if you can track and measure it.

    You can easily conduct marketing and brand surveys and give different titles to key employees; ensuring the company can function without you. But how do you know if these actions are ‘working’? All these actions will reflect on one, and only, metric—how much your company is worth.

    So, it’s important to keep track and make sure your actions are actually reflected in a value increase. You can track company value, create your own spreadsheet, talk to consultants, or use data-enabled technology, like Equidam, for business valuation.

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Remember, the best way to make an exit more successful is to make the company more successful. These are just a few of the actions that can be undertaken to grow your company’s value, bring it closer to its full potential, and complete a successful exit that represents all of the hard work that went into building the company.

Disclaimer: The author of this article is associated with Equidam, and has vested interest in the company.

 

This article has been edited and condensed.

Daniel Faloppa is the Co-founder of Equidam, a cloud technology and financial services company providing tools for SME evaluations; helping both entrepreneurs and professionals gain access to better data analysis tools. Following the cloud revolution that occurred in the accounting and bookkeeping industry, Equidam is bringing the world of financial analysis to the cloud. Faloppa is passionate about finance, technology and startups. He completed a BSc in Economics and Finance at the University of Padova (Italy); graduating cum laude from the MSc Finance & Investments at the Rotterdam School of Management. Faloppa’s goal is to help entrepreneurs succeed and participate in the growth of the highest potential ideas. Connect with @Equidamtweets on Twitter.

 

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