The importance of defining your exit strategy

The reasons for running your own business tend to get lost in the everyday blur that is the life of a business owner. Keeping these reasons in focus is a valuable edge that will help you what you want out of your business — in both the immediate term, and the long run.

You need to be sure that this years-long investment of yours is going to culminate in an event that makes you happy to walk away. This means two things: leaving the fate of your business in good hands, and empowering yourself for the next phase of your life. Exiting the business is an entry into something else, and you’ll want to be enter that arena in stronger position than you did the current one.

So ask yourself a few questions. What is that next phase? What do I need to get for my business to set myself for success? Who will be willing and able to give me that? And do I want to leave the fate of my business in their hands?

Your basic options for the next phase

You can either choose a partial exit from the business, trading some of your interest (and responsibility) in the company for more freedom, or you can make a complete exit, which involves one of the following:

1. Total retirement, total freedom, a life of leisure and adventure, and the autonomy to pursue anything you wish on your own schedule. You’ll only need enough money to cover unforeseen expenses (like medical bills) and the lifestyle you wish to maintain. It helps to define that lifestyle, so you know exactly how much you’re going to need to get for your business.

2. Buy or start another business. You could do it all over again, in a different field, or different area. Armed with some capital and everything you’ve learned, you’re set up to do it better and have more fun this time around.

3. Rely on investment strategies to build or maintain your own prosperity. With the right help and the right approach, you can put your capital to work for you. This will still require some time and effort, but much, much less, and it can be quite profitable.

4. Work as a consultant. You can put your hard-won experience to work, and advise others on how to succeed in your field. With some capital for living expenses, you can have a lot of control on exactly who you work with and what your schedule looks like. This option allows you to take your time and make sure that your new role is accommodating to the lifestyle you want to have. You probably already have the beginnings of a good network of clientele and partners in place; now is the time to start expanding it.

5. Traditional employment, full or part time: this may seem like a step backward to some, but to those who have satisfied their ambition, the easy going, low pressure routine of the employee may have a strange appeal. Just show up, perform your job, and collect a guaranteed amount of money. You can use this to supplement or stretch the capital you get from the sale of your business. You can also get paid to learn a new skill this way.

Who to sell to

There’s two ways that the sale of your company is financed: either by you, the seller, or by a creditor of some sort. That could be a bank, or it could be an investor or pool of investors. The latter option means you can get all, or at least most, of the payout up front. This obviously seems like the more responsible option, but it does limit the pool of potential buyers to those who can get credit.

You might find that the only buyers who can get approved by lenders or earn the trust of investors are outsiders who have little-to-no sympathy for your original vision for the business. That could be investors, who only are interested in the profitability, or another company looking to absorb yours for strategic reasons.

That’s not to say you can’t find somebody whose vision aligns with yours that can put together the money. But it might be hard if you’re looking to sell to a trusted employee or partner, or somebody else you know. In a situation like this, you can offer seller financing. This means you accept some or all of the payout in installments over time, or maintain an interest in the business for a period. It also means you carry some risk, but you do get to sell to somebody who will do right by your company.

Getting the most for your business

Once you know where you’re going, you can start calculating how much you’ll need. This is why it’s important to have a detailed, well-defined exit strategy. You have to be realistic — about how much you need, how much your business is currently worth (read about valuation here) and how much it can be worth. If you find you have a lot of ground to make up, don’t be alarmed. Its normal for business owners to be emotionally invested and not see the worth of their business objectively. If you’re currently running successful business, you can get those numbers up.

The more time you have, the more you’re going to see the market value of your business objectively. That’s why its important to define your exit strategy immediately. There’s a systematic approach to building the market value of your business. As you implement it, you’ll find that it improves the value your business provides to you, your employees, and your customers. You can read several articles about the value building process on this blog, which are indexed here

For outside help in building or selling your company, you can speak to an experienced business and legal professional by filling out one of our contact form here Free Vector Advisors is happy to offer flexible, back-loaded payment arrangements for assistance in the growth and sale of businesses.

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