Starting a Business? You Should Already Be Thinking About Your Exit Strategy. Here's Why. Planning for a profitable sale should start even before you open your company.
Opinions expressed by Entrepreneur contributors are their own.
Right from the start, even before you've hung up your open sign, you should be looking ahead to the day you sell your company (for a nice big profit, of course). It's a fact you must face because you will have to exit someday. Everyone does. Will you control that exit or let fate control it?
The truth is that most owners do not sell according to a strategic plan. I certainly didn't.
When I sold my first company over a decade ago, I had no idea where to start. Fortunately, I was able to exit successfully and then buy my next venture — a business brokerage office. Over the past 10 years of helping entrepreneurs sell their companies, I've learned that most are not prepared. While hundreds of experts will teach you how to start and grow a business, very few will teach you how to sell one.
As a result, when owners decide to exit, they take the simplest route and just shut it down rather than sell.
Related: Before You Enter Into Franchising, Consider Your Exit
What keeps owners from selling?
Two false ideas keep owners from selling profitably when it's time to exit.
1. They perceive small value as no value
They think only large companies are sellable, which is simply not true. As a result, some just don't even try.
Companies sell at all sizes — from a few thousand dollars to millions. The median sale price of a company is currently $315,000, according to BizBuySell.
This is true no matter what your company is. If it's profitable, efficient and attractive to a large buyer pool, you can sell easily in any industry. We still have competitive bidding wars within industries like newspapers, print shops and postal stores. The key is having an exit strategy and designing a sale plan that attracts the largest pool of possible buyers.
2. They don't prepare strategically
Running a company with the intent to sell it someday is a much different strategy than growth. Owners can make critical mistakes in their growth strategy that can poise their firm to be unsellable in the future.
We see examples like this all the time. One of our clients purchased an automotive business. They assumed their family would run it for generations. So they focused on building and growing the company, spending all their profit and then some. Unfortunately, the owner became very ill just a year after the purchase, and the children were not prepared to take over. The company was in such poor financial condition it was unsellable, eventually shuttering its doors.
Planning early for an eventual exit pays off. A second example is our client who purchased a construction company intending to grow it for a profitable sale. From the experience he had in this industry, he knew he would be able to purchase several smaller companies and roll them into a larger, much more valuable company. The process took approximately four years, and he recently received an offer for 10 times his original investment.
Related: 3 Business-Exit Strategies That Actually Work
Three ways to kill your sale
When you decide to sell, avoid these errors that owners often make:
1. Getting stuck on a sale number
It's always good to have a goal number in mind. But sticking too closely to that figure can cloud your judgment so you refuse to sell for a realistic price. If your only option is to sell and you refuse to budge from your goal number, you could end up shutting down and getting nothing.
2. Not focusing on profit
Unprofitable companies are harder to sell, no matter what. Revenue should never be the focus; it's always about profit.
3. Thinking you can do everything on your own
Getting outside help with exit strategy and planning is essential. Life is too short to make all the mistakes on your own. Deal professionals are involved in hundreds of transactions a year. They know exactly why some sell, some don't and some sell for a seemingly crazy price.
Related: 5 Smart Exit Strategies
Is it time to sell?
The time will come when you realize your business is ready for sale. The process should begin with a valuation and exit assessment by a professional who can determine current value and future sale potential.
Entrepreneurs should always be ready to sell, either because of unexpected life changes or when new opportunities arise. The sale is more likely to be a profitable one if you have been planning your exit strategy throughout the life of the business.
