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Five Key Steps to Maximize Your Business’s Value Before Selling

By Quiet Light
| Reading Time: 7 minutes

Following the right business exit strategy allows you to maximize value and win more favorable deal terms when selling an online business. In the absence of a cohesive exit strategy, many entrepreneurs receive a lower purchase price than they could otherwise achieve. Given that your business likely may be your most valuable asset, it only makes sense to follow a proven framework when going to market. 

In this article, we address several important topics related to selling your business, including:

  • What is a business exit strategy?
  • Why it’s important to have a business exit strategy before going to market
  • Five elements of a great business exit plan
  • What is the best exit strategy for your business?

“In the absence of a cohesive exit strategy, many entrepreneurs receive a lower sale price than they could otherwise achieve.”

Business Exit Strategies

What Is a Business Exit Strategy?

First, as a business owner, it is helpful to know what business exit planning is.  

Business exit strategy basics

Most successful entrepreneurs don’t wake up one day and decide they want to sell their company. If someone were to take this approach, they may have a hard time finding a serious buyer, depending on the state the business is in. Even if they did eventually sell it, it would likely sell for a lot less than they could have achieved had they planned ahead. 

Business exit strategies serve as your plan for how you are going to eventually move on from your business. They help you to position a business to create an easier and more profitable sale. A successful strategy includes accurately evaluating a business, identifying strengths and weaknesses, and creating a plan to address those weaknesses prior to selling. 

As you can imagine, the best time to implement an exit strategy is long before you decide to sell. In general, many experts suggest you should start planning your exit 12–24 months before you list your business for sale. 

Whether it serves to improve your company’s documentation practices, introduce new ways of monetizing a customer base, or mitigate areas of risk, the right business exit strategy will allow you to have an easier and more successful exit. 

Why it’s Important to Have a Business Exit Strategy Before Going to Market

Having a proactive business exit strategy serves several purposes, including:

  • Creating a more profitable exit
  • Winning more favorable deal terms
  • Achieving an easier sale
  • Helping you run a more profitable business

Creating a more profitable sale

A majority of the total financial value you derive from your business will come when you sell it. As such, it makes sense to maximize the final sale price of your business as much as possible. 

First and foremost, the right business exit strategy will likely allow you to achieve a more profitable exit when you do decide it is time to sell your business than you would have in the absence of an exit strategy. 

By carefully planning ahead, you’re better able to attract more interested buyers. In turn, this increases the competition for your company and leads to a higher purchase price.

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Winning more favorable deal terms

The final sale price is not the only thing that matters when it comes to measuring the success of your sale. Not all deals are structured the same. There are many ways to finance a business purchase, from an all-cash sale to seller-financed deals. 

The exact terms of the sale ultimately come down to the outcome of negotiations between you and the potential buyer. As with all negotiations, the more leverage you have, the more likely you are to win deal terms that are more favorable to you. 

Competition amongst buyers is important for winning more favorable deal terms. By implementing a comprehensive business exit strategy, you increase your business’s attractiveness.

Any work you can put in now to improve your business will come back to you in the form of more favorable deal terms when it comes time to sell.

“By carefully planning ahead and optimizing your business operations, you work to attract more interested buyers and increase the competition for your company.”

Achieving an easier sale

Selling a business can be an intimidating process. From finding the right buyer to negotiating price and terms to closing the deal, there are many steps along the way that can present challenges. 

However, by creating a more attractive business, you increase your chances of having a smoother and less stressful exit. With multiple interested buyers, you can rest a little easier knowing the leverage is on your side during negotiations. Buyers will be more dedicated to working with you to secure the deal and less likely to spring surprises on you throughout the process. 

Run a more profitable and streamlined business

It is easy to see how exit planning can create a less stressful exit, allow you to win more favorable deal terms, and drive up the final sale price of your business. In addition to these benefits, the right business exit plan can also help you run a more profitable and streamlined business while it is still under your ownership. 

As mentioned, a business exit plan requires you to identify and address weaknesses. Depending on the weaknesses that your business has, this optimization process could lead to revenue growth. 

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A significant portion of an exit strategy is making sure your operations are managed effectively and efficiently. This could mean:

  • Getting your financial statements in order
  • Setting clear standard operating procedures
  • Creating teams to automate your processes 

All of these steps will make it much easier and less time intensive to run the business while you still own it. This will allow you to focus your energy on big-picture responsibilities like driving growth or adding more products to your lineup. 

“By creating a more attractive business, you increase your chances of having a smoother and less stressful exit.”

Five Elements of a Great Business Exit Plan

No two business exit plans are the same. The best exit strategy for you will depend on the unique attributes of your business in its current form. But regardless of whether you run a small business or a larger operation, there are several steps to go through in order to put together the right exit strategy. 

1. Get a valuation

Getting an initial valuation of your business will help you get a better idea of where your business currently stands. By knowing its worth and what drives its value, you can start to build a realistic road map for where you would like to be when it does come time to sell. 

There are several business valuation tools available on the internet. An experienced business Advisor, however, can provide you with a more detailed and accurate valuation. Given its importance, many owners choose to work with an Advisor.

2. Set your goals

First and foremost, it is important to get clear on what you are seeking to achieve and set concrete goals accordingly. Start by asking yourself when you would like to sell your business and how much you would like to sell it for, and work backward from there.

What would your ideal buyer look like? Do you want to sell it as part of a strategic acquisition to a larger company or group? Or, would you prefer to sell it to an individual entrepreneur?

When setting your goals, it is important to be realistic about what you hope to achieve. If your company is currently valued at $100,000, setting a goal to sell it for $2,000,000 in a year without a credible road map won’t really help you. 

3. Complete a thorough assessment of your business

The business valuation process provides you with a range of insights. In addition to getting a valuation, it is helpful to conduct a thorough assessment of your business operations in order to see how they can improve. 

While there are many different components of a business to assess, it is helpful to group the components into four categories known as the Four Pillars of Value. These include:

  • Growth
  • Risk
  • Transferability
  • Documentation

By evaluating these four components, you can get a pretty clear picture of where you should focus your attention.

4. Create an optimization plan

Based on the findings of your assessment and the weaknesses you identify, create an optimization plan that serves to address those weaknesses. 

If your growth has been sluggish, for example, what can you do to improve it moving forward? Are there steps you can take to improve the ease with which your business is transferred to a new owner? Or, is it possible to eliminate certain parts of your business that incur more risk?

Whatever your plan looks like, make sure it is created in a way that ultimately helps you achieve the goals you set for yourself initially.

5. Implement

Once you have received a valuation, set your goals, assessed your business operations, and created an improvement plan, it is time to implement. Certain changes take time to put in place and create a positive difference in your business. Therefore, the earlier you can implement your plan, the better.

What is The Best Exit Strategy for Your Business

No two businesses are the same. As such, the right exit plan for your business will vary based on the state of your business, your selling goals, and the resources available to you to implement changes. 

Regardless of whether you are creating a succession plan for a family member to take over a family business or an exit strategy to sell your business outright, it is important to plan ahead. By doing so, you can create a smoother exit, win more favorable deal terms, and ultimately sell your business for a higher price.

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