Do you have an exit strategy? This podcast is all about things you should be doing now to build the value in your business. These three items will help you get what you want out of your exit.
Start with the end in mind
If you don’t know where you’re going how will you get there? This is a very fundamental principle. For your business, you must know your “exit point”. This should be the amount of money you need to have to retire or move on to the next phase of your life – whatever that may be. Also, you need to have an idea of how you want to transition out of the business. Are you going to sell it? Are you going to still own it but be an absentee owner that just gets an income? Are you going to transition it to a relative or employee? Whichever you choose, the business will need to look the same at the time of exit. You need to start thinking and planning now if that business will look like you want it to at the time of exit.
Have Recurring Revenue and a Good Revenue Mix
Your business mix should be such that you have customers and a marketing base that you can always generate new business. If your business is favoring replacement or bigger sales in a higher ratio more so than service and maintenance, it will take more effort and more cost to generate the sales year over year. Once you’ve installed that system, rewired that house, or re-piped that drain line, you won’t do it again for 10-15 years. If your business has a good ratio of service and maintenance to replace or bigger jobs, you’ll have a bigger “internal” base for marketing and new business. Ideally, you have a good maintenance agreement base from which to generate replacement and add-ons. The best strategy is to have a good business mix that is growing by at least 15% per year. This is most attractive to a new owner or to providing you an ongoing income should you choose to transition the business internally.
Owner Involvement in the day-to-day Should be Minimal
For you to achieve the top value for your business, the new owner must see themselves owning the business in as easy a way as possible. Similar to selling a house, you have to stage it to get the highest value. You have to fix it up to sell it. The new owner needs to see a business that’s easy to own and easy to understand, and easy to operate. If you’re a key day-to-day employee, the business cannot run without you. This is not something a new owner wants to see. They don’t want to take on a huge challenge that requires tremendous time and effort to get a return on investment. To maximize value, you should make every effort, as feasible, to replace yourself in every day-to-day task in your business. Here’s a challenge to test your involvement in the business: Can you leave the business for two weeks and have everything run as it should with no chaos or crises? If yes, you probably have a business that is independent of you. If not, you’ve got some work to do to introduce processes, systems, or people to replace you. This also makes for an easier internal transition.
While there are probably another 50 things we could discuss to add value, we feel these are some of the most important. If you’re not sure where you are on your journey, we can help.
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