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A One Year Exit Strategy Plan
Planning matters. Even if you have no intention of selling your website, positioning it correctly in the event that you one day need to sell can result in a significant difference in your overall value.
Below is an example that is based on an actual sale:
- In May, a potential client contacted us to sell his newsletter/content based site. Our valuation at the time was roughly $275,000.
- We recommended that he work with the site and worked collaboratively to create a blueprint for his eventual exit.
- 1 year later, the site was listed. An offer was received and accepted for $325,000.
- Total value gained through a simple exit strategy: $50,000 (plus an additional year’s profit).
Obviously not all exit strategy plans have this dramatic of an impact. For companies that are already well positioned the benefit will certainly be less, but knowing whether or not you are well positioned can help you know if you need to work on an exit plan.
Not all exit strategies will be the same, however, similar elements will be involved. Below we offer a template of a 12-month plan that most business owners could employ should they want to sell their business within a 9 month – 15 month window. This is offered to highlight some of the more important aspects of where you should place your focus.
The goal of this exit plan is to position the website and company in such a way that it will fetch an above market average price in a relatively short amount of time. Secondarily, the goal is to ensure a smooth transaction that reduces the possibility of a broken deal.
First Quarter – Initial Assessment & Major Changes
Check Your Value
- Get a current valuation to act as a benchmark for progress. We can help you identify some of the more important items to focus on in developing your exit strategy.
Optimize Business Operations
- Make Final Significant Changes Now, then Stop. If you are planning any significant change in your business model, make these changes now. You will want at least 9 months under a new business model, or significant change in business model, to prove that the business works under the new business model.
- Get scrappy. Your #1 goal is to make every month of the next 12 months more profitable than the year’s prior corresponding month.
- Add Google Analytics to Your Site. Love them or hate them, Google Analytics is the expected standard among buyers. Other premium analytics software can be used as well, however, unless you have significant objections to Google Analytics, it is highly recommended that you use them.
- Start tracking any and all personal expenses that are run through your business. These will be added back when you bring your site to market, however, you will be expected to have backup to prove that these were personal. Some items are straightforward (means and entertainment) whereas others are less straightforward (business travel that is extended to include a personal vacation).
- Separate out non-core business activity. If you run multiple websites through one business entity, start tracking which sites are bringing in which revenues, and the same with expenses.
- What accounting method are you using? Determine if your business is using an appropriate accounting method (accrual vs. cash basis). Many businesses use a mix of accrual basis and cash basis which should ideally be cleaned up. The proper accounting method can add value by more properly representing your business and making it easier to verify in due diligence. Recasting books can be a significant undertaking.
- Are Your Records Organized? Take a look at your records – are they well organized, or are they disorganized (especially the financials)? If they are disorganized, much of the next 3 quarters will be spent organizing, collecting, and tying together your records.
- Get on Quickbooks, or other Professional Software. If you using Excel, a web admin, or other informal book keeping software, make the move to a professional accounting software now. Professional accounting software will enable you to run complex reports within minutes and it can be easily transferred to a buyer for continuity.
- Inventory Tracking. Do you keep track of your inventory? How well? If you do not, you will want to plan on how you can start tracking new inventory that comes in and also begin to track old inventory. Cost of item and date received are key items to know. You can keep track of this in Quickbooks or a spreadsheet (although Quickbooks is always preferred).
Check Your Plans
- Check in with a QLB Advisor. There’s no need to do a full valuation at this point, but touch base with a QLB advisor to explain what has been done and what you are currently working on. We may have some additional insight as to where you can best spend your time.
- Check Revenues and Profits. Both should be trending upward or at least holding steady with the previous year’s quarter. If not, identify why as soon as possible. Problems that are beyond your control tend to get worse and could risk your value significantly if you wait to sell. Problems within your control should be remedied as soon as possible.
Operations & Marketing
- Begin to evaluate the rough edges of your website. Dead pages, broken links, etc. should be cleaned up before bringing the business to market.
- Do a detailed SWOT analysis of your company. Be thorough, invite outside opinion (especially for the weaknesses and threats). Ask a Quiet Light Advisor to offer their opinion as to what will be perceived as weaknesses and threats (or opportunities for that matter). Once you identify weaknesses and threats, determine how you plan to deal with these. If there are any easy opportunities you can take advantage of without investing significant income, do so at this time to help increase revenues.
- Determine if your website needs a significant overhaul. While some buyers enjoy reclamation projects, most buyers will overestimate the amount they will need to spend to overhaul the website and thus devalue how much they are willing to pay for your site. Be sure to track your expenses to any major overhauls as they may be discounted or backed out in total.
- Evaluate the traffic going to your website – is it overly concentrated to one source? If so, do you have control over that source? For example, if you have a huge email list that provides a majority of your sales, this is a source you have some control over. On the other hand, if your sales are generated from only a set of 5-10 keywords that Google has you ranked well for, you do not have control over that. Identify areas of weakness in areas of inbound traffic, and begin to remedy those.
- Review any SEO consultants and PPC consultants you have hired. You do not want to get to month 12, and then find out your SEO firm was doing something shady.
- Are you tracking goals and conversion rates? Setup Google analytics to track goals: sales, new subscribers, or leads. You will want to have basic information as to how well your site is converting.
- Start tracking your hours and how you spend your time. Providing a detailed ‘day in the life’ of your business is very valuable for prospective buyers. Identify staff that is not necessary and start tracking their activity in detail.
- Collect All of Your Official Business Papers. Articles of incorporation, business licenses, etc. Find these, scan them, put them in digital format, and then put them in a folder. You will need these later. If you do not have certain papers, request copies (which can take time and which is why we do this in the 2nd quarter)
- Check in With Bookkeeping. Are your records in a professional software system like Quickbooks? Can you use merchant statements and bank statements to match up your records? Continue to clean this up.
- Find Old Tax Filings. Ideally, you will want the last 3 years. Start to consider how your business books match up to your taxes. If there are discrepancies, start working on creating spreadsheets to show how taxes were calculated.
Value Check In
- Check the value of your site at the halfway point. Contact your QLB advisor who can provide a rough valuation to see if you are making progress.
- If Revenues or Profits are Down, Identify Why. Revenues and profits should be heading steady or heading up. If you are seeing a dropoff, try to identify why. Ideally, you will be able to fix any problems, however, if it is a problem that is too difficult for you to fix on your own, it may be in your best interest to speed up the time of your sale so that you do not lose value in your business.
Operations and Marketing
- Check in with marketing teams. SEO, PPC consultants, or other marketing teams that work with your company should adopt a ‘stay the course’ mentality and start scaling back. Significant new marketing efforts likely will not pay off in time to impact the sale. At the same time, do not cut off marketing so that you don’t experience a revenue dip just before the sale (or worse, so that the new owner doesn’t experience a revenue dip after the sale).
- Start to contain web projects. If you have engaged in a web overhaul as part of your exit strategy, make sure it is coming to a close at this point. You will want some history on the books showing that the upgrades do not negatively impact the business.
- Identify Job Roles that are Unnecessary. Your goal is to show how the business can be run in a lean fashion. Unnecessary jobs that add little value should be reduced or eliminated.
- Contact Vendors. Check to see if any significant changes are expected from them in the next 6 -12 months. Significant price changes, new product lines, a change in policies, etc. can all disrupt a sale if they occur during the discovery or due diligence processes. Find out in advance so you can disclose this to a potential buyer and avoid a nasty surprise.
- Identify single points of failure such as individual clients that represent too large of a percentage of revenue, or vendors that are your only source for a product or service. For vendors, find backup vendors should the need arise. You do not need to work with them, but know their contact information and price sheets.
- Collect Statements – All Statements – vendor statements, invoices, bank statements, merchant statements, etc. You will want to have these ready and organized for due diligence. You will be expected to have records going back 3 years. If you do not have copies of statements, these will need to be requested and often banks will have lead times of 4-6 weeks to get copies of statements.
- Begin to do analysis on your customer base. Identify metrics that show customer loyalty such as return or re-order rates, average revenue per sale, average number of items per sale, etc. Buyers love metrics. The more you have for them, they more they can be told just how great your business is.
- Bookkeeping. You should have your books up to date and cast under the proper accounting system by the end of Q3. In Q4, you should be able to generate end-of-the-month statements at the end of every month.
- Personal expenses should now be successfully separated out as well as revenues and expenses from other business activities.
Check in Value
- Get an updated valuation of your site, and determine if you will be ready to sell in 3 months or less.
- Identify seasonalities in your business. If you are heading into a busy season, consider timing your sale to come shortly after the busy season (we can assist in helping determine the best time to sell).
- All Web Projects Should be Complete. There should be no ongoing web projects at this time, they should be completed and no significant changes should be made.
- Marketing Should Be Steady. No significant changes to marketing should be made. It should be as steady as can be.
- Create a Master Due Diligence Package. This should include all official business records, tax returns, any guide or spreadsheet that maps your financials to tax returns, copies of contracts and legal documents, copies of lawsuit related materials, copies of complaints and resolutions, and copies of a financial verification package. Have a hard copy prepared and also scan for digital purposes (easier to deliver).
- Create a Financial Due Diligence Package. This will be a guide that explains how a buyer can navigate through your invoices, bank statements, merchant statements, receipts, etc. and tie them into your displayed financials. You will want to explain basic methodology and show a handful of examples so they can easily replicate on their own.
- Create Ancillary Reports. Re-order rates. Number of signups/orders per month. Average value per action. Renewal rates. Any metric that applies to your business, collate this data now into a spreadsheet.
Finally, Remember You are in a Market
Always remember that you are working in a marketplace. You can maximize your value within the marketplace and even have a value that falls above the marketplace, but you should still focus on having realistic values of your business. We have tested the impact of overpricing businesses and find that the offers are counter-intuitively lower than if a business is priced properly.
Our goal with every transaction is to meet your goals, whether that be in maximizing value, maximizing efficiency, or simply a quick and painless sale. Remember that we are always happy to discuss with you your site and your preparation and execution of an exit strategy.