Here’s the truth: selling your business requires time and clarity. Many entrepreneurs of early-stage businesses are caught off guard by the lack of a defined exit plan because they’re focused on building a scalable, profitable business and not thinking about selling it or even planning their exit.
A complete exit strategy covers all aspects of the entrepreneur’s transition, including asset management, retirement planning, preparing the company for a future transfer, and analyzing prospective exit alternatives. Regardless of how you get to transfer your business—whether through retirement or a buyer knocking on the door—a well-thought-out exit strategy goes a long way toward making the process seamless and painless.
What Is Exit Planning?
Exit planning is a strategy used to maximize business value during an exit. It allows owners to settle their tax obligations and meet their personal and business goals. In addition, an exit plan enables business owners to see their financial and legal options at the time of exit.
A good exit plan allows the exiting party to:
- Reduce or postpone the total taxes payable
- Maximize the company’s valuation
- Facilitate smooth transitions concerning management and operations
- Control the timing and nature of their exit.
Top 2 Reasons to Start Now
Value Creation Takes Time
Value is created when a company earns more revenue in excess of the capital required to cover expenses. Value creation is the foundation of a company’s growth. Some analysts consider it a critical management aim rather than a set of rigid financial performance criteria that focus on cost-cutting for short-term outcomes rather than investments that improve long-term competitiveness and development.
Value creation for customers helps your company expand and grow as a brand, whereas the value for shareholders refers to future investment guarantees and growth in stock prices. Don’t forget the employees who become the company’s best assets when they have autonomy in the workplace. Autonomy helps attract and retain excellent talent, a value driver for any company.
A value creation mindset invites opportunities to discuss the value creation process, which creates a common language between parties to share their views on building value. Value creation does not mean taking risks. It mitigates risks by looking at different perspectives to resolve a company’s pain points.
For example, Steve Jobs focused on greater functionality rather than what potential customers wanted. As a business person, one must know the difference between wants and needs. Therefore, Jobs paid little attention to physical keys, but he improved the functionalities of the computer he wanted to sell. To say the least, Apple is known for its user-friendly functioning.
Another great example is Spotify. Among choices for streaming platforms for music, Spotify rose above them all by simplifying the streaming process. The ease with which you can connect with people from around the globe through art makes the platform unique. You can record and stream your podcast, listen to millions of selections, and share your playlists with anyone you want. In addition, Spotify focuses on creating trends, making it an evolving platform. Its marketing strategy focuses on the masses by collaborating with influencers on social media to curate regularly personalized playlists for its streamers. The best part: not only does the audience find performers they recognize on Spotify, but local artists get to use Spotify as a platform to reach a worldwide audience.
Value Creation Increases Current Value
A value creation process entails bringing together various viewpoints to reduce risk. Innovation does not happen by accident; it requires discipline, commitment, and hard work. A profitable value creation process attempts to make success a foregone conclusion.
This collaboration will put you ahead of many entrepreneurs if it results in an environment where employees feel valued and appreciated, a place where employee retention remains high. You’ll be more likely to grasp what your employees need to continue to help your business develop if you focus on value creation and communicate directly with them.
Apple creates value for its customers by giving them the best functioning gadgets. But, more than that, owning an Apple gadget is considered valuable, resulting in high customer retention with a brand royalty of 92%.
Employees who are trusted to accomplish the responsibilities of their positions are the hallmarks of high-performance organizations. Employee well-being, communication, trust, support, alignment of values, and an emphasis on growth are all characteristics that contribute to a high-performance culture. Building a high-performance culture may be daunting, like any new or continuing project. However, focusing on value creation expedites and facilitates the process.
When buyers purchase a company, they assess the market niche to ensure viability and flourishing rather than struggling. Then, if they need funding, the investors will ensure that if they provide money to this company and its industry, it will be sustainable, and the owner can repay the debt.
Potential buyers are not concerned about your future or your retirement. All that matters to them is buying a valuable company that will flourish and brings them profits. Value is important to them. Synergies are important to them. They are concerned with what will benefit them and will pay for whatever is beneficial for them. Value is in the eye of the beholder, be that the customer, employee, or buyer.
Buyers want to know that your employees know what to do and do it well, which helps ensure that your products have a promising future. Buyers will examine company procedures to verify whether they are efficient, productive, and well-documented. They want to make sure you have proprietary information, and that everything is in working order. The more proprietary information you have, the more a buyer is willing to pay. Transferrable contracts and patents may attract enough buyers to create a bidding war and obtain a better price for your company.
How Value Scout Can Help
You need to prepare far in advance of leaving the company to ensure the company is growing, that the finances are in order and that there are no legal difficulties. This requires a team to ensure continuity and development when you go. When searching for new owners, exiting owners should not let the business slow down; instead, they should seek appropriate guidance from advisors to assist them with the exit.
Value Scout is a platform designed to help entrepreneurs work with advisors and build business value through AI-assisted assessments. Our platform helps individuals and businesses grow to their desired value in the market and helps them plan successful exits.
Value Scout includes features like planning tools, getting your valuation, planning your exit, dashboards, etc.
Get a demo to learn how we can help!