Small business and startups: 5 tips for a safe exit Mike | May 31st, 2011
Many of small business owners eventually find themselves at a crossroads and have to give serious thought about winding their way out of the business they built. This can be for many reasons including strategic objectives, retirement, or just plain ennui. Sometimes running a business for many years can lead to questioning the business model itself, or just the simple realization that the learning curve has gone flat and it’s just not so much fun anymore. I was speaking last night to a woman who started a successful business over 15 years ago, but felt trapped in it and was struggling hard to extract herself and at the same time leave the business to a grown child who was not quite ready to take it over. She was torn between her desire to leave a legacy to her daughter and her desire to move on to something new.
There are as many ways to exit your business as their are reasons for doing so, and the advice I offered my friend is that she define her personal goals, look closely at her options, consider how she should define “value,” and give careful thought to what was next for her. I recommended that she look carefully at how her exit could provide a springboard while at the same time fulfilling her objective of helping her daughter.
Realizing that there are many business owners weighing similar decisions, I thought it would be helpful to list out some of these thoughts, so here are 5 important points to consider as you make your way towards that metaphorical “exit sign” over the next door in your life.
1. Define goals.
Take the time to ask yourself, “what’s next?” It is critical to understand what you want to do after your exit as this will (and should) strongly influence the way you want to exit. Just like when you started the business, a careful examination and understanding of your goals should be the first order of business.
2. Determine strategy.
Goals drive strategy in exits just as they do in business, and careful strategic planning and execution are just as critical with an exit as they are to managing your business. You I’ll need to ask yourself “how” and consider the various strategic options available to you. Will your exit be a sale or and hand-off? Will it be an IPO or a liquidation of hard assets? As you answer that key question you’ll want to consider whether you’ll do this yourself or work with an advisor and the legal implications that your choice will determine. Understanding what you want from the exit can help you to determine the road to get there.
3. Execute well.
The tactics you choose to execute your strategy are just as important as they were when you were first building the company. Plan out your exit campaign much as you would plan and execute a great marketing campaign.
4. Understand value.
Valuation is a tricky business and there are many ways of determining the value of your business: multiples of revenue, margins, or EBITDA; market-based or income approaches; asset approaches, discounted cash flows, or CAPM, WACC or a handful of others. Some businesses are fortunate to exit via an IPO, while others are, frankly, better off being liquidated; indeed, many founders discover that they can extract greater value by breaking up their precious baby and selling off the parts. At the end of the day, however, there is only one valuation that counts: how much someone is willing to pay and how much you are willing to accept.
5. What’s left behind.
In many (most?) cases there will be a business left after you are gone and you should give thought to what kind of business that might end up being. The choices you make at the exit can influence greatly the business you leave behind and can profoundly influence its chances for success or failure going forward.
photo: Paul Bence