Exit Strategy

Many are just starting their business, but you should keep in mind a plan for an exit strategy. The expression, “Begin with the end in mind” is an excellent of thinking about it in case your business is sold or you retire or change careers. From Market Watch, I found this article that outline how to create a small business exit strategy.

John Brown, president and founder of Business Enterprise Institute, says there are five steps business owners must take to formulate their exit plan:

  1. Determine your objective. “One is timing — how much longer do you want to work in your business before you sell it, give it away or transfer it to your employees? Two is figuring out how much money you’ll need for your financial security.” [Read Tim Ferriss’ book, The 4 hour Work Week, to figure exactly how you need to live on.]
  2. Designate a coordinator. “You need to put an advisory team in place that can help you with the transition. The team could be made up of your lawyer, your CPA, your financial adviser. But you really need to have at least one adviser who knows the planning process, who can bring in other advisers as needed, and who can coordinate everything,” says Brown. [Find someone like a SCORE volunteer who may have also sold their business and learn from them]
  3. Get your business appraised. Work with a professional business appraiser, or, if your business is very small, a CPA. “Owners usually do not have an idea of what their business is worth,” says Brown. [Customer base, goodwill, and market share should be considered]
  4. Focus on increasing cash flow. “Most business owners will focus on increasing revenues or opening additional offices, but cash flow is used to determine the value of a business,” says Brown. “If the owner can increase the cash flow by a couple hundred thousand dollars, he can increase the business value by $750,000 to $1 million.” [Begin to pay debt down if you are planning to sell your business. This makes your company more attractive if you have less “debt baggage”]
  5. Put a management team in place. After you’ve determined who is going to take over your business when you retire, you should have a management team — or, in a small company, just one person — to transition the business to the new owner. “This is critical. Third-party buyers will want someone to carry on the business. The management team should have a relationship with vendors, customers, etc.” [Consider who your successor may be–an trusted employee, family member, or consultant]

“The more time you give yourself to implement a plan and figure out value, the better off you’ll be.”

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