5 Exit Planning Mistakes.... when you sell your business.
If you're a business owner and you're thinking about maximizing the value of your business for a sale or an exit someday, it's important to know about exit preparation and the five expensive mistakes to avoid as you're on your way toward a strategic exit. Kevin Murray, the founder of Energize Your Business, which helps business owners grow their companies and get prepared for an exit tells you how to sell your business in this informative video. You can watch the video or read the full transcript below the video.
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It's never too early to begin planning!
Prepare & Plan
So if you're a business owner and you're thinking about maximizing the value of your business for a sale or an exit someday, it's really important to know about exit preparation and the five expensive mistakes to avoid as you're on your way toward a strategic exit.
Business Seller Center & Kevin Murray
The Business Seller Center focus is on helping you sell your business by taking you to market after developing the whole marketing plan to sell your business. So the Business Seller Center is also the hub of all these professionals that you're likely to need during your business growth mode, all the way through exit preparation and through closing and selling your company. So again, CPA's, Attorneys, Commercial Bankers, which are going to help your buyers finance the deal, Commercial Real Estate might be involved. There's Wealth Advisory, as well as Digital Marketing to help you just do the best possible sale that you can. In Business Seller Center, I have a vast number of connections in each of these categories of professionals, and some are going to be more focused for your business than others. So we're going to pull together the right team based on what you're trying to do.
I'm also a member of some major associations that keep me up to date on the latest trends in the Merger and Acquisition world and the business brokerage world. I'm a member of the International Business Brokers Association and the M&A Source. Also to keep my network robust and to keep me in front of the best professionals, I'm a member of the greater New Haven Chamber of Commerce and locally here, the Cheshire Chamber of Commerce.
Sell Your Business for Maximum Value
Again, the goal is to maximize the value of your business for your current enjoyment and your current income, but also to help you get ready to do a strategic exit. We're going to talk about the big mistakes to avoid when you are ready to sell your business . Less than 20% of business owners ever have a strategic exit. Most businesses, they just stop, people get sick or they die. They just stop doing their business, they liquidate. It's a very small number of businesses that do the preparation, have a strategic exit, and they have a big financial benefit at the end of that process.
We're going to talk about the top five expensive mistakes to avoid when you're getting ready to go to market and sell your business.
It is a mistake to sell your business in a hurry. Sometimes this happens, but if you've got to sell anything in a hurry, if you have to sell your car in a hurry or your house in a hurry, you know you're going to take a haircut. You're going to get less than the value that you would receive if you gave the market time to look at this opportunity. We don't want to be in a hurry to sell your business, because it brings a lot of extra pressure on you and it really devalues the price that you're going to earn.
The simple solution for that is to start planning, start preparing now to sell your business . I often tell people the right time to think about your exit strategy is when you're doing your foundational business plans, when you're starting your company, that's the best time.
Well, if we didn't do that, then the next best time is now, and the worst time is when you have to sell your business. So get started now, find the professionals that you need.
2. Not Preparing
The second big mistake a lot of companies make and there are things you can do to make this better. But if you have owner-centric sales and or owner-centric operation, that means the company can't run without you. If you're doing all the sales and you're doing the majority of driving the operation, the company is just going to be worthless. It doesn't mean it can't sell, but it's going to be worthless in the eyes of a buyer. On the flip side, if you have a company where you can take months off every year and you can come and go as you please, and sales still happen and operations happens, your customers are satisfied and revenue and earnings are generated; that's a much more valuable business because the buyer can enjoy all the earnings you get without really having to step in and run the company.
Versus if the new owner has to put in a manager or they're going to be the owner-operator and take your position and they have to learn everything you do, it has a big difference in the value when you sell your business .
What we can do about that is starting to develop some selling tools. We can look at hiring a salesperson or a sales team, there's sales training. We get other people involved in the selling and the marketing. And there's also leadership and development of your current team to help them step up, to help you delegate, to be able to give away more of the day-to-day work to the team that makes you more valuable in the eyes of a buyer.
3. Client or Market-centric Earnings
The number three expensive mistake is you have a client or market-centric earnings. So if all your business, the worst case, all your business comes from one client and you lose that client, you're out of business.
The best case is you've got a wide variety of customers across many different markets and many different industries. So if one business cycle is going up and the other's coming down, it could be construction or real estate versus law firms or commercial construction. If you've got different markets and different clients, you can weather the storm easier than if you're really focused on one client or just one market that you serve. The way around this is you look at adjacent markets, you look at similar markets that you're serving, that you haven't reached out to. There's some partner marketing that we can do and I'll explain this in another video in more detail. But there are ways of reaching out to other markets. And even from the buyer perspective, if you've started to even outline the plans and develop the strategies to do this, that shows you have a recognition that that's something that's important.
Some companies don't even put the plan in place for the future and they just let the buyer come and figure it out. That's going to devalue your price. If you have a marketing plan in place, that's worth some extra money. And if you're taking action and you're executing on that, then starting to generate some results, that's going to make things look a whole lot better to a buyer when you get ready to sell your business . Even if you haven't started creating great results from marketing, just that you've got a future plan.
4. Maximize Underdeveloped Earnings before You Sell Your Business
The fourth big piece is that again, underdeveloped earnings potential. So this is kind of similar to what we were just talking about, but this means there are some really clearly easily obviously gettable markets or customers or opportunities that you just haven't had time to go after. And a smart buyer will know that they can and go after those, but they're not going to pay you for future opportunities.
They're only going to pay you for the earnings and the strategies that you've developed and you've implemented beforeyou sell your business. So similar to the last item, we look at adjacent markets and near markets. We start to develop our approaches. We start to address those markets. We start to get some sales from these other markets that we haven't served historically. Again, hiring salespeople might be part of this process. So again, the more time you have to do this, the more likely you'll start to create results. If you got to sell your company next month, it's really hard to do this kind of work. But if you're a year or two away or longer from going to market, there are a lot of things that can be done in these categories to improve your sales, to broaden your sales network, your marketing network, again, to make you look better to a buyer.
5. Formalize Procedures
This one's really important. And a lot of companies have procedures. Everybody has procedures for how you get a new customer, how you take a new order or onboard a new client, all the things you do to take care of them, how you bill it. But for the companies that have really clearly outlined standard operating procedures, that could be worth anywhere from 0.5 to one times more of multiple of your earnings. So let's say your business has half a million dollars in earnings, but you don't have any standard operating procedures, you'll get an offer for your company. But if you have really clearly outlined processes and half a million dollars in earnings, just having those processes outlined can be worth another quarter-million to half a million dollars in your value. So to spend a little time and money on having those in place, you're going to get multiple returns on that investment.
The solution to sell your business that is to start creating and building your Standard Operating Procedures manual, or it could be done online through something like Dropbox so your whole team has access to it. But that creates a lot of value in the mind of the buyer. So again, they're going to value you based on your earnings and some kind of multiple of that, and that's based on the risk perception. So the more that they see risk, the lower, the multiple, the less they see risk, the higher the multiple. So if they see that you understand your business and you've got a whole manual outline for how you do everything in your business that means there's less risk to them. They can pay you more. So one of the things that I'm offering along with this message is an Exit Readiness Assessment on what steps to take before you sell your business. It's going to ask you a handful of questions.
It only takes a few minutes, but it gives you a sense of how prepared you are in these areas. And if you want, and you return that to me, I'm happy to have a conversation with you about this process, how we help you get ready, and how we take you to market.
So overall my recommendation to avoid all these problems is to get help and get started and get started now.
CONNECT WITH BUSINESS SELLER CENTER TODAY!
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It's never too early to begin planning!