What is an exit strategy? Why should I care? I am not planning on selling anytime soon.
As a business owner it pays to be prepared. Exit strategies are considered to be an essential part of owning a successful business. Nobody wants to part with their business when they start out, but if you haven’t planned for it when the time comes to leave it, it’s already too late.
Let’s look at the facts –
Currently less than half of small businesses have an exit strategy. Of those businesses, as much as 22% will walk away from the business empty-handed.
Well, jump into their shoes. You’re running a business that you know back-to-front. You’re working 50 hours a week, because you’re the accountant, the payroll officer, the general manager and client liaison and every other person you need to keep your business running.
Put simply: without you, there is no business. It’s worthless to anyone else. And potential buyers see this too.
This is a common scenario, and one that an exit strategy will prevent.
Now that you know the theory, let’s put it into practice.
Tony is incredibly smart. He runs a small digital agency and also is the lead guitar player in his garage band.
Tony has built up his business from scratch, (lets call it ’Squash Marketing’), and has a hand in all of its dealings and operations. He has been smart, and has low overheads and a small group of dedicated designers and developers that are loyal to him. The business has a growing client base, and lots of return customers. The only real problem is that he is critical to the operations of the business.
Last October, Tony’s band got ‘discovered’. In one whirlwind month the band had been signed to a four album contract complete with tour dates all across the country.
All of sudden, Tony has to make a very difficult choice:
1. Take the chance to become a rock star and forfeit his business entirely, or
2. Give up on his dreams to keep his agency running.
Tony was a smart man, but he made a stupid (though all too common) mistake. ‘Squash Marketing’ was reliant on him, meaning that there was no business without Tony, therefore he had nothing to sell.
The best managers work to make themselves redundant.
Let’s turn Tony’s situation around.
Tony reads this article, and considers his exit strategy. He takes the time to set up the people and processes behind his business, allowing it to run independently. Let’s take a look at his options now:
1. Tony sells his business as-is. He would have a lot to offer a potential buyer, such as a well-established client base, loyal staff, stable processes and the figures to back it all up. He may even find that his current employees may want to purchase it from him, as they already see the value in the business and have a vested interest.
2. Tony fires himself. He could consider taking on a partner or operations manager for his business that could handle the day to day operations while Tony is on tour.
Because Tony had an exit strategy, he had viable options, even if he ultimately chose not to leave the business.
Some simple changes to your business and a little planning now means that you’re setting yourself up for sustainable success in the long term too.
To get you started, here are a few resources: