One of the most pressing questions business founders and owners ask is how they can grow their businesses in a manner that allows them the freedom to exit on their terms?
In answering that question, most business owners get one thing wrong: they focus on building an excellent target for acquisition. In their aspiration to sell their company, they focus on long-term growth strategies to calculate short-term returns. Neither allows them to position themselves as a strong acquisition target nor builds business value.
Instead of thinking about what a potential buyer really wants, they should focus on what their customers want. The most effective strategy for a successful business exit is to build the company’s value. Following are three ways to ensure a successful exit:
- Develop an exit strategy. A strategic exit plan allows the business owner to sell their ownership in the business to another company or investors. As a result, the business owner can significantly reduce their stake in the business and profit. If the business operates at a deficit, then the exit strategy helps limit financial losses.
- Get a business valuation. Business valuation is necessary to determine the current worth of the business accurately. It does this by analyzing all the aspects of the industry using objective valuation measures. These aspects include the company’s management, debt-to-equity ratio, prospects of future earnings, and the current market value of business assets. Owners preparing for their exit should be aware of the gap between the amount they need to exit and the business’s current value. This information guides them in building the company’s value until it’s time for their exit.
- Build a business that can operate without you. To be an attractive acquisition target, the company should be able to function independently of the owner. Buyers seek a company that can operate without daily intervention or micromanagement. The key to a successful exit is knowing how to structure the business for eventual sale. Focus on streamlining operations, identifying and eliminating redundant business practices, and empowering employees and management teams by training them.
Ideally, exit planning should begin three to five years before your eventual business exit. But what if you don’t have that time? Even if time is shorter than ideal, these nine tips can still increase your company’s value.
1. Set clear personal goals and establish your exit objectives.
Have you figured out what you want to do after you sell your business? Will your financial needs change after retirement? Do you have a retirement plan? How much money do you need from your business exit to fund your future life goals? When do you want to sell, and how do you want to exit? As an owner, you should clearly establish your future financial needs and quantify your requirement.
2. Let go of revenue targets; develop a “value and growth” mindset instead.
Buyers are always on the lookout for long-term value, so invest in your company’s infrastructure, operational strategy, and personnel development. Do not make the mistake of thinking short-term revenue gains automatically translates to higher business value. Buyers look at your business to make it a critical asset. Therefore, their reasons for acquisition depend upon whether your business adds value to its existing portfolio.
3. Build a base of loyal customers.
A solid, growing customer base represents market demand for your products or services. A growing number of customers also indicates increased demand and, ultimately, higher profits. Your business’s sustainable growth requires higher sales.
Focus on creating loyalty programs to retain existing customers and attract new ones. Since loyalty programs are designed for the customer’s benefit, they will also give you real-time data about their engagement with your brand. This data is critical to find the nuances of target market segments and study the sales patterns of specific customer segments.
Such programs act as a foundation to develop an effective customer engagement and acquisition strategy. While customers enjoy products that cater to their specific preferences, you enjoy higher sales and profitability.
4. Are your products and services overly reliant on you?
Overreliance on your involvement in delivering products or services affects your business’s transferrable value. This dependency may also turn your focus away from other business aspects. That demand of your time and attention significantly and negatively impacts the business value because if you were to leave the business suddenly, it would not survive that disruption. Instead, focus on building its transferrable value by involving the management team and training them to take over.
5. Differentiate the business by focusing on your niche.
Do you know why your customers prefer your product over others in the market? If you don’t, it’s time to find out. This insight will help you develop a marketing strategy that showcases that distinct or unique quality. Invest in marketing channels and tactics to highlight how that difference better serves your customers.
Follow a disciplined sales approach to make your business valuable, focusing on your product’s niche aspect. Your differentiated products and services are what make your business a valuable acquisition target.
6. Create recurring revenue streams.
Predictable, recurring cash flow is good for business. Recurring sales build value and reduce stress significantly. A company with guaranteed cash flow always interests a potential buyer. Multiple recurring revenue streams also help in accurately forecasting sales and growth projections.
7. Get your supply chain in order.
Are all your vendor contracts and agreements in order? If not, then now is the time to organize all aspects of your company’s supply chain. Anything can happen: a key supplier could go out of business or raise prices to unsustainable levels. Since supply chain disruption can lead to significant business losses, it’s best to diversify vendors. Moreover, interested buyers will verify your vendor contracts and their longevity.
Although having multiple vendors delivers little impact on revenue, but strengthens your business, reduces risk, and makes it a more valuable acquisition target.
8. Document business policies and procedures.
Never underestimate the importance of documenting business policies and other procedures. From employee contracts to vendor agreements to administrative procedures, it is necessary to organize and update everything to facilitate a smooth transition. Codified procedures and protocols enable you to show exactly what the buyer is purchasing. Moreover, having all your documents in order makes the buyer’s due diligence much easier.
9. Build an advisory team to guide you through the exit process.
Your business is what you do best, not exit planning. Exit planning is a complex process with myriad aspects to oversee and manage, including reviewing financial statements, operational history, industry, location, etc. With so many nitty-gritty details to manage and run the business, you can’t devote the necessary time and attention to everything. Engaging the services of certified exit planning professionals to lead, coordinate, and implement the exit plan just makes good sense.
Your advisory team serves as the backbone of your strategic exit plan and your successful exit. That’s what they do best.
Value Scout is a unique value creation platform that will help identify the value gap, identify and eliminate business risks, and enhance business value to achieve your desired exit. We can also help by connecting you to a certified, experienced advisor. Get in touch to learn more.