We reach out too many business owners about the value exit strategy planning can add to their businesses today and many are very hesitant to even think about exit strategy planning. It is often that we get responses like these:
- Selling the company is not something I am ready to think about
- I am too busy to put time into something that is so far away
- I have more important issues to deal with today
- I am leaving my business to my child/children
Exit strategy planning can help business owners add great value to their companies over the long run, but just as important, they can add strength to their company today. We have found that business owners that do no exit strategy planning don’t learn many of these things until they are ready to sell their company and find out that what is important to buyers are things that show the strength of a company.
1 – A Strong Management Team – Can your business run smoothly if the owner or any of the key people are no longer involved in the business? Often times the owner plays a key role in doing all the business development or product development and there isn’t anyone else involved in the company helping. If something happens to that person, then the company is left in a bad position.
2 – Customer Concentration or Product Concentration – Sometimes it is hard to avoid this one, but having strong concentration of one customer (over 20%) or one product can make the company more fragile if something changes with that customer or product and it can have a major impact on the company. We never recommend passing up a large opportunity that will create this concentration, but understand the impact it could have on your company.
3 – Audited or Reviewed Financials – Smaller companies often want to avoid this expense, but it is worth the cost. Having financials that are overseen from a third party accountant take away any thought of bias towards the company and make sure they are being done properly. The other important aspect of financials, is comparing your financials to your industry. The comparison to your industry can really point out things your company is not doing as well as your competitors are doing.
4 – Growing Revenue and EBITDA – Annual revenue and EBITDA growth from year to year shows a sign of a strong company. It normally is linked to keeping current customers happy and coming back and bringing in new customers while holding costs at the same level. If there is a decline in revenues and EBITDA, there is a worry that customers aren’t as happy anymore.
5 – Intellectual Property/Trade Secrets – Buyers really want some form of protection on what they are buying. Business owners also want protection on what they create. Sometimes patents are the best way to achieve that and sometimes they give out too much information. Even having a patent can lead to the high cost of protecting it. The more your company has that competitors don’t and the better it is protected, the stronger your company will be.
6 – Keep Up with Current Technology and Trends – Business owners sometimes have a fear about making changes or find themselves less focused on keeping up with their industry to focus on the day to day challenges they face. Other times it is just avoiding the expense and hassle. If your technology or capabilities fall behind that of your competition, you are hurting your company’s future, strength, and value.
7 – Assignable Contracts – Some companies we talk to still work on handshake deals that have been in place for years with their customers or vendors. Contracts are put in place for when things go bad so that both sides understand their responsibility. They cost money to have a lawyer work on and take up time for an owner to read and make sure they match the deal they are working out, but they are extremely important and valuable. Also, make sure that your contracts are assignable to a new owner in case you sell your company in the future. If your contract isn’t assignable, it can lead to issues when it is time to sell your company.
A business owner shouldn’t expect to achieve all seven of these recommendations at all times. We do realize as a business owner you already have many other things you are juggling, but keeping this list on your mind when planning big picture items will strengthen your company today and add value to your company when you are ready to sell.
If you’d like to talk about your business and your personal situation please reach out to us.