Most businesses are built so that they can eventually dole out rewards to their hard-working owners on exit. Whether the intention is to sell the company, offer it as an inheritance or wean it into a self-supporting profit-making machine, the ultimate goal for many business owners is to be free from day to day operations and get sufficient return on their investment of time, effort and money. That is why exit strategy is as important as building the business itself.
Some analysts believe that it was Marc Zuckerberg’s lack of exit strategy that turned Facebook into a public company which eventually lost them millions of dollars. Without a well articulated exit strategy, the business was overtaken by legal defaults that could have been avoided otherwise.
The argument for early exit plans is easy to prove and is widespread enough to represent a vast array of entrepreneurs across industries and the globe. Although commonly accepted best practice of planning an exit strategy in a business’ first phase is not without contention.
Detractors of the practice claim that planning to sell before a business is bought can turn into an Achilles heel due to lack of focus. Purchasing a company purely as an investment vehicle to be flipped for profit lacks the direction needed to turn it into a success, since it discourages the focus needed to earn the very returns it seeks to gain. Those who hope to retire lucratively need to strike a balance between these two opposing points of view by planning the entire lifespan of the business to its end without allowing those dollar signs to create a distraction.
Money has the capacity to steal attention away from much-needed market share growth, a solid infrastructure and customer satisfaction, which are all required to build a saleable company. The human aspects that give a company success can lose all the power when built upon an investment model alone.
Employees are unlikely to give their best to businesses whose sole purpose is to make money for the owners. Over-ambitious cost cutting becomes tempting when leaders lack goals that rise beyond profiteering.
In spite of the fact that exit strategies carry potential pitfalls does not derail the truth that most businesses sell within of six months of the decision being made. This whittles away all the power entrepreneurs have to maximize their business’ value — a process that ideally begins within the first months of ownership.
While financial performance of the business is used to assess company’s valuation the potential buyers will also focus on tangible assets and human capital that will be required to run the business after sale and will be the primary drivers of future profitability. Well established systems, employees that can function independently of core leaders and a fool-proof infrastructure are the building blocks that business owners should focus on from day one.
Entrepreneurs putting their businesses on the market for sale are often unprepared because they focus on building profits rather than value. This is an easy mistake to make but it comes at a great cost. Knowledge of how a company will be depicted to potential buyers through financial documents, valuations, due diligence practices and deal structures helps sellers envision the type of framework they need to construct over the years to win the most rewarding outcome.
This article was contributed by BusinessesForSale.com, the market-leading directory of business opportunities from Dynamis, the online media group also behind FranchiseSales.com and PropertySales.com
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