Remember when you first started your business? Young, maybe a little naïve, willing to take the necessary risks, not knowing if success or failure was in your future. Fast-forward to today; you have built a successful company that has provided your family and others a nice lifestyle, financial security, and a mission. At some point in your future, you will be contemplating your exit and the succession of your business. Will you be ready? The issue at hand is that most business owners don’t really know what it takes to monetize their business since most have never done it before. In fact, 48% of business owners who want to exit their business have no exit strategy (smallbiztrends.com).
Building Your Bridge
There is a huge gap between actively running a business on a daily basis and successfully monetizing your business and sailing off into the sunset. You need to build a bridge to cover the gap. I call it your Bridge to Monetization and it takes time and a lot of focus while running your business.
Like a physical bridge, Your Bridge to Monetization™ needs a well-thought-out design, a strong foundation, and has multiple stakeholders to ensure a successful exit. In this case, your stakeholders are you, your management team, your employees, your advisors, and possibly your partners if you have them.
It takes time, unwavering focus while running your business, hard work, and a well-qualified team of experts with exit planning experience. All these components make for great success. However, to achieve true success, you will need a process that guides you and your stakeholders. The process can be as easy as one, two, three – Build Value, Protect Value, and Monetize Value.
Having an exit process helps business owners and their team stay focused on the goal. It streamlines the many requirements to prepare for an exit and it helps avoid important items falling through the cracks. A simple 3-step process of Build Value, Protect Value, Monetize Value incorporates many factors that are at play in an exit strategy.
Step 1: Building Value
Identify and maximize your value drivers, assimilate the value of goodwill to your valuation, and emphasize the clarity of your brand and your internal and external messaging. The first step is to benchmark value (more on benchmarking to follow).
Step 2: Protecting Value
Focus on locking-down and incentivizing your key team members, protect against tax erosion (pre and post-sale), theft, and identify and address all possible risks that could de-rail your business prior to an exit.
Step 3: Monetizing Value
Analyze and evaluate all your internal and external monetization options and strategies. This could include internal monetization options like creating a family legacy if family is involved or selling to your management team. It could also mean selling your business to a private equity firm, a strategic sale, or a financial sale. Another alternative may be selling your stock to an ESOP which may be the best thing for you and your business.
Benchmarking Your Business Value
At the very beginning of the exit planning process, you need to benchmark value. It is a critical step that is often overlooked by owners, yet they seek to maximize value at the end of the process. If you are going to maximize value at the end, you need to know the true value of your business at the beginning of the process.
Unfortunately, most business owners don’t know the real value of their business. Even those that are immersed in the financials may have a false sense of what their business is worth. Like real estate, it’s only worth what someone else is willing to pay for it. However, focusing on increasing value 2-3 years prior to your exit (by identifying and enhancing your company’s value drivers), just may increase the sale price.
When benchmarking value, you want to get an independent appraisal that is not colored by your personal judgment and emotions. A professional advisor can review your financials with you but look at them through the eye of an investor or buyer.
Business Exit vs Business Succession
Business exit is different from business succession in that business exit focuses on the business owner’s exit, where business succession focuses on the succession of the company and its employees. Both are very important, however how important will be determined by the plan and its execution. Building your Bridge to Monetization™ requires determination and a true understanding of your monetization options, some which may not be easily visible to you. That is why you need a qualified team of exit planning experts.
The Business Exit Challenge
To find out if you are ready and prepared, take the business exit challenge. By answering a range of pointed business exit questions and receiving the accompanying free report, it will provide greater insights on your readiness for your future exit (clearadvicebusinessquiz.com).