Whether you’re a few years or a few decades away from exiting your business, planning for the future of your business is key. A well thought through exit strategy doesn’t just help you sell your business when you want to; it also gives you a roadmap for building value. For small business owners in particular, having a path to a successful exit means making your business attractive, profitable and ready for the next chapter – whether that’s a sale, merger or passing the reins to the next generation.
Steps to Create a Long-Term Value Plan for a Profitable Exit
1. Start with a Clear Vision and Timeline
Before you get into a detailed strategy, think about your business exit timeline. Are you looking to exit in 5 years or setting up for the long term? Knowing your timeline helps you pace your efforts and focus on the tasks. Also, what are your goals for the business post exit. Do you want to:
- Stay involved or fully exit?
- Keep the business in the family or sell to an outside party?
- Sell for maximum profit or find a buyer who shares your mission and values?
With these answers you can create a strategy that fits your business, your lifestyle and your aspirations.
2. Build Value Drivers into Your Business
Your business’s value is made up of its revenue, profitability and growth potential but buyers also look at less tangible factors that make it an attractive acquisition. Value drivers include:
- Strong Financials: Buyers want to see a history of steady and predictable cash flow. Accurate financials are key as they give a true picture of the business’s financial health and potential.
- Scalable Systems and Processes: Make sure your business has processes and systems that will transfer to a new owner. Documenting processes, training protocols and workflows will prove the business can thrive without you there to manage everything.
- Customer Base and Brand Loyalty: A customer base with repeat customers and loyal followers is a big asset. If you have a recognizable brand and a steady stream of leads this will increase the attractiveness of your business to potential buyers.
- Multiple Revenue Streams: A business that is dependent on one or two key clients or a single revenue stream is risky to potential buyers. Building multiple revenue streams diversifies your income and shows the business has room to grow.
3. Focus on Financial Health and Documentation
Creating value for a successful exit requires high financial transparency. Make sure you have a clear, accurate and easy to understand financial history. This includes clean records for:
- Revenue and profit growth over time
- Accounts payable and receivable
- Debt obligations
- Profit margins and cash flow projections
Work with financial professionals and industry consultants to identify areas where you can improve profitability, cut costs or streamline operations. Having all your financials in order will make the due diligence process with a buyer smoother and also gives you peace of mind that your numbers are reliable and scalable.
4. Build a Strong Team and Company Culture
A skilled and dedicated team that can run the business without you is a big value-add to your business. Buyers want to see a strong motivated team with good relationships with clients and partners. If your team can manage the day-to-day operations independently, this shows the business can thrive with new leadership.
Invest in training, team building and a solid company culture to keep your team engaged. Consider hiring or developing leaders within the company who could take on bigger roles down the line. This reduces the risk in the buyer’s eyes and shows the company is ready for new ownership.
5. Step Back Gradually
One of the biggest challenges for small business owners is the business is too dependent on them. If you’re the sole point of contact with clients, manage all the key operations or hold all the key relationships, buyers will view you as a risk and hesitate to purchase the business or offer less money to compensate for the risk.
Start delegating and create systems that allow the business to run without you. Build relationships between clients and multiple team members to maintain loyalty rather than relying only on your personal relationship. Stepping back from day-to-day operations not only makes the business more attractive but also helps with the transition when you’re ready to fully exit.
6. Get Regular Business Valuations
Knowing the current value of your business is crucial to track your progress and refine your strategy. Get regular valuations with a certified business appraiser to see what your business is worth and where you can improve. Business valuations don’t just give you an exit price they give you an insight into how your business compares to industry benchmarks and guide your next steps.
7. Work with Professionals
Exiting a business is a big deal and working with professionals who specialize in business transitions is priceless. A team of advisors including a financial planner, accountant, lawyer and M&A advisor will help you make the right decisions throughout the process. They’ll make sure your business is correctly positioned, help you navigate the tax implications and give you insights into how to maximize your profits.
Building Your Business Exit Strategy with Purpose
A business exit is more than a transaction – it’s a legacy. By creating value early, simplifying your operations and planning for the long term, you will be ready for a smooth exit when the time comes. Whether you’re passing on the business to new ownership, selling or retiring, do these now and you’ll exit with confidence and satisfaction knowing you’re leaving something of value behind.
Robert (Bob) Gustafson is a serial entrepreneur and has been involved in the financial services industry for more than 25 years. Bob started Triton Business Advisors after seeing a need for ethical consulting and advisory services for small business owners. Most of these owners didn’t have access to the type of resources they could trust. Triton Business Advisors offers the same type of services that larger management consulting firms offer targeted at the needs of the small business.
