You should decide How and When to Exit Your Business
Start Preparing from Today so you can be 100% Free to Exit
The more freedom and control you have over your exit, the more options you have to capture the full value from your business
Challenges to Having Ultimate Freedom and Control
Public companies have a public stock price that provides immediate feedback on how the market sees the value and direction of their business.
Private companies do not have this luxury. As a result, private business owners seldom understand the true value range of their business and the key drivers underlying them.
They often make the mistake of equating the profitability and the total money they invested in the business with the total value of their business.
Although profitability is a key driver of Business Value, it is one of several factors. The other key drivers must be identified, measured and enhanced.
By not understating the various key drivers of business value, the business often under-performs and lacks direction. The business becomes a daily grind. However, it is during this daily management of the business that its value can be created or often destroyed.
Therefore, it is very important to understand from now the value of your business, its key drivers, and where you should concentrate your time and resources.
Ownership and Business Value Cycles
As a business owner there are three cycles you go through in regards to your business. These are building and enhancing the business, protecting the business, and harvesting the value of the business. Examples include:
Build / Enhance
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Grow Revenues
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Increase Profits
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Optimise Expenses
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Diversify Customers
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Customer Experience
Protect
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Business Insurance
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Legal Protection
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Business Structure
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Limited LIability
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Trademarks
Capture Value
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Owner Salary / Benefits
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Transfer
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Internal Sale - Staff
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Partial Sale
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Full Sale to 3rd party
Unless you run your business to the ground, the vast majority of the value you will capture will be in harvesting the business, especially its exit.
To best capture the value of your business upon an eventual exit, you need to begin by understanding its value and key drivers from now. Exiting and capturing the value of your business is not as simple as turning on a switch or even selling your house, it is a complicated process and can take years to prepare for it to be done effectively.
The Circumstances of your Exit Determine the Value You Can Take Home
It goes without saying that how you exit your business will determine the value of what you will capture from it (for many owners it is zero or negative). Exiting a business is often the largest financial decision a business owner will make and frequently this is a one time event in their entire lives.
However, businesses are some of the most complex assets to successfully dispose; some of the items you have to consider include:
People. What happens to your Family? Are you able to support them if you exit? How about your Staff? How will they react? Will they help or hinder the process?
Processes. Are they in place? Are they documented? Will they add or subtract value in the eyes of a buyer?
Customers. How will they react? Will they leave with you or continue with the business? The answer to this question will determine whether you can even sell the company?
Intangibles. How are these being valued? Do they increase or decrease the longer the time you wait? Will they transfer with the business or disappear with the exit of customers, staff or yourself?
The value and position of this list above is dynamic and constantly changing.
The economic, regulatory and competitive environments that affect the business do not stand still, so there is no such thing as buying time by making no decision.
Delay and procrastination around exit planning are strategic decisions just as much as finding new suppliers or launching new products.
Often delay and procrastination prove to be the biggest causes of the eventual failure of the owner to capture the value of his business.
True Freedom comes from Owning a Business that is Valuable, Scalable, and "Sellable".
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Scenario: Being Prepared
A couple of hypothetical examples help clarify this concept.
The owner has spent five years strengthening and structuring the business to prepare for an exit. He concentrated on three main drivers that he knew were lacking:
The owner has now optimally positioned his company to transfer or to sell at his discretion. He has several options to decide how he wants to exit his business and has already received three offers.
- He can gift to his children,
- Place his business under a private equity umbrella and continue working by choice (either as controlling owner or just employee), or
- Sell to one of two strategic buyers who would completely take over.
Scenario: Unprepared and Cost from Lack of Options and Not Free to Exit
Imagine the same business above but the owner did not prepare for a sale and so did not successfully prepare himself for an exit. Now five years later he has a health scare but his options are limited: Lack of preparation has eliminated the most valuation options and depressed the value of the remainder:
- Liquidation
- Gifting the company to his children and asking them to support him.
- There are no potential buyers as they see the business too dependent on the owner and the financials were too sloppy to instill confidence.
In Summary, how prepared you are to exit means how many options you will have and what flexibility you possess in determining both the value and timing of your exit.
Preparing to Exit Drives Up your Business Value at the Same Time
The best way to drive up the value of your business is to prepare from now for an eventual sale – even if you have no intention of exiting or selling for a long time. The upside is you transform your business into an independent asset that can thrive without you and enables you to be free to exit at any time.
Owning an independent business is not only more enjoyable to run, but it provides you the peace of mind in knowing you are free to step away and spend your time elsewhere while it continues generating wealth for you.
How the Four Step Sophiall Solution Works
Free Your Time and Live the Life you Want
Step 1: Initial Consultation
Get to know each other and understand your challenges and goals.
Step 2: High Level Assessment
Where does your business currently stand and where would you like it to end up? We will work through the Value Builder System, a proven system that can increase a company’s value by more than 70%.
Step 3: Create the Value Plan
Create a plan, tailored specifically to you and your situation, to drive up both your Company’s Value and Independence, so it can free your time and thrive without you.
Step 4: Execute Together...
Step by step through monthly learnings, tasks, and milestones to implement the solutions that will ultimately give you the type of business and life you want.