How do I make my company more sellable? 7 exit strategy steps

Posted by on Friday, February 19th, 2016 in Uncategorized

How do I make my company more sellable? 7 exit strategy steps

When I consider business exit strategies I’m reminded of that old 70’s song by Paul Simon, “Fifty ways to leave your lover”  Every one of us exits our company’s, a good exit strategy makes all the difference between success and failure.

 

The purpose of this post is to provide seven simple steps that every business owner can do that will support a good exit strategy.  Selling your business is a highly complex process that requires planning and teamwork.

 

 

  • Financial performance – Financial performance consists of three parts.  Revenue, expenses and cash flow.   Most companies are valued based on how much money the owner earns.  So you simply increase your profits to increase your value.  As part of your exit strategy develop and implement a plan to increase sales through marketing, advertising and referrals followed by line and product extensions.  

 

Next you’ll have to address expenses.  Take your four largest expenses and begin shopping.  Cost of Goods, Labor, Insurance and Taxes often make up the greatest expenses in many companies.  They are all related  so reductions in one often show up in others.  For instance reduce labor as a percent of income and your workers compensation, general liability insurance, payroll and unemployment taxes will be reduced.

 

Finally address cash flow.  A company that can finance its growth from operations is much more valuable than a company that has to assume loan liabilities.  Increasing revenue and decreasing expenses are the first two areas to find additional cash flow.  Proper management of accounts receivable and accounts payables is critical to cash management.  Negotiate with suppliers to extend terms to 45 or 60 days or negotiate discounts on prompt payment.  1% discounted invoices if paid in 10 days is a substantial annual savings.  Consider a secured line of credit with your bank.  This allows you to take advantage of discounts while taking up to 30 days to pay.

 

Sure, these can be difficult tasks but the pay off both immediately as well as to your exit strategy is enormous.

 

 

  • Growth potential – Exit strategies need a future story and only a well thought-out growth plan that has been implemented provides that story. What do you think is worth more?   Telling a potential buyer your company would “take off” with good marketing or implementing a marketing plan that drives sales, increases revenue, and profitability?   Buyers don’t just want to know how successful you have been, but how successful you are going to continue to be.  Ideally your exit strategy supports growth both now and in the future.  

 

  • Wide deep client base – A company with only a few large clients is risky for two main reasons.  First, that one large client is probably in a better negotiating position than you which can impact your ability to get the best price and terms.  That will hurt your financial performance.  Second, what it that customer leaves?  Big clients are great for growing your business quickly, but if one customer is greater than 15 percent of your business, it will impact your exit strategy.So add customers to dilute the big accounts to 15 percent, or better yet less than 10 percent of your revenue.  Consider expanding sales to by lowering margins to smaller customers this adds profitable business while diluting the impact a large customer can have in your business.

 

  • Sustainable competitive advantage – The exit strategy clearly states and defines what makes your company different from all the other companies in your industry.  This is vitally important for a buyer.  Buyers need to know that after the sale closes they can continue with the same competitive advantages that produced results for you.

The most compelling sustainable competitive advantages have two attributes.

 

First, they don’t depend on you.  You’re leaving so if the competitive advantage is your close relationship with a key customer or supplier you’ll have to address that before you can sell your company.

 

Second, the competitive advantage would require a competitor dedicate a significant amount of resources (time, money and effort) in order to reproduce your model.

 

 

  • Customer satisfaction – This is simple.  Happy customers are more valuable than unhappy customers.  Google your company, yourself, and your competitors to see what is being said.  Search company review sites and HR sites to see what customers and employees are saying about you.  Check out your local Better Business Bureau for complaints.  Finally view your own social media accounts from an outsider’s perspective.  What do you see?

If you don’t see positive results make changes, address issues and respond to negative reviews.  If you don’t have a social media presence get one.  At the very least secure your name and similar names from every social media outlet, URL and blog.  Just having all these for a buyer adds value to your exit strategy.

 

 

  • Strong management team – Your exit strategy will illustrate that your company doesn’t need you to keep it running.  Develop strong mid-level managers and supervisors in all areas of your business.  Then test your staff by stepping back and letting them run.  You’re building an exit strategy so use it, take a long weekend, come in late, leave early.  A buyer will always ask you to detail your daily routine.  When you explain coming in late and leaving early is part of your routine they’ll know your team is strong and valuable.  

When your exit strategy shows prospective buyers that they are investing in a business which will continue to succeed long after it leaves your hands they’ll agree with the value.

 

 

  • Exit strategy plan – This post discussed steps to take in an exit strategy.  Now develop a formal exit strategy plan that incorporates all these steps as well reasonable timelines and budgets to meet the plan’s objectives.  This exit strategy plan will encompass the growth plan and also include business valuation conclusions, forward-looking financials, company and industry reviews.  The result is a comprehensive roadmap for your future.  

 

There are many  firms and individuals that offer this service.  Look for one that stands behind their work with a guarantee.  Look at each firm’s offerings and determine how they get paid to determine where their interest lies.  Look for a firm that only develops plans and strategies.  Look for a firm that is nationally recognized by the business community, and has proven credibility.

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