Exit Planning Mistakes

I’ve said it before, I’ll say it again and I’ll keep saying it. Every business needs an exit plan. Even if that plan is to run it until you die. And there’s nothing wrong with that either.

The reason you need to have a plan is so that you can properly operate your business accordingly. My philosophy is to have the plan of “run it like your gonna sell it”. It puts you in a position to sell should you change your mind, something tragic happens (this is a sad but common occurrence) or an offer you can’t refuse comes along. And believe me that type of offer will not come along if you don’t operate in a manner conducive to selling it.

Let’s assume for the sake of this article that you are planning on selling sometime in the future. Let me give you a few statistics. About 75% of all businesses put up for sale do not end up selling. They close shop and if they’re lucky get a few bucks from some sort of auction. This is the result of not planning the business around a possible sale.

Of the 25% that do sell, they take an average of 6 to 18 months to do so. In total, only about 1% actually sell for the true value or better. Very, very sad. This too, is due to a good business that had an owner who did not understand the importance of preparing for the sale.

Even a business with great profits is not going to sell for what it seems to be worth mainly because of two factors. The owners did not keep easily provable records (i.e. Too much money hiding from the tax man with no way to prove the true income to a buyer. An unfortunate back lash of this accounting method. Sorry but nobody is going to pay for unseen money on your word or “potential”.)

The answer to this is pretty obvious. You need to either hide your money in a way that can still be proved, stop hiding it for at least 3 years prior to putting it up for sale, or accept the fact that your profits shown on your taxes may be the only thing a buyer will take into consideration putting you in a very weak negotiating position.

The second factor is building the business completely around the owner. This is also known as creating a job for yourself instead of an actual business. And it’s all too common in small business. If you really want top dollar for your business, it needs to be appealing for a savvy buyer with money and business knowledge to take over without having to be the same expert that you are. The best buyers are looking for a true business, not a job. If you are the main solution provider or salesperson in the business, there is no business without you.

To solve this, putting as many systems in place as possible is the way to go. Get assistants or virtual assistants to do things you really don’t need to be doing. Automate as much as possible especially marketing systems.

My real point is that if you set up your business to be sold, then you will have a true business and not a job. You will make more money for yourself and do it with much less effort. You really can’t lose.

Hide your money from the government if that’s what you want to do, but don’t skimp on systems, procedures and taking yourself out of the day-to-day as much as possible. A true small to medium sized business owner has their hands on the pulse of the company, especially on financial metrics, income stream strategies and marketing strategies.

Be a true business owner and give yourself the opportunity to someday sell the company you worked so hard to build.