A Beginners guide to exit planning

​​Let's take a quick look at the main points to consider if you're beginner considering your options for a small business exit. ​He said, "the reason you exit a business is not the same reason you start a business." And that really resonated for me because I'd never taken the time to really consider the difference between the two. And if you're like most small business owners I work with, maybe you haven't considered it either. 

Chances are if you're considering exiting your business, this is a relatively new concept for you. You've spent many years working in your business, working on your business, hiring, firing, and putting out fires. You always envisioned that you'd work forever, right? And now, something's changed and you want to know how to get off this darn merry-go-round! Right?

The problem for most business owners who've decided now is the time is exit, is they've been singularly focused on the easiest and most efficient ways to run a profitable business. They have spent little to no time considering the factors and logistics involved with selling (and transferring) a successful business to a new owner. 

It doesn't take a rocket scientist to identify the root of this problem. Simply put, small business owners rarely have the bandwidth to plan that far in advance. And frankly, small business ownership is a leadership role that's constantly evolving and demands 200% of your time and attention. Finding balance between working ON your business versus IN your business continues to be a challenge for many, if not all, small business owners. And so, we put off exit planning until there is no other choice. 

If this describes you, you are not alone. I want to give you hope by reminding you there are resources, tools, and advisors that can  make these next steps easier (and more profitable) for you.

​Let's take a quick look at the main points to consider if you're a beginner considering your options for a small business exit. 

1. What's your business size relative to the market? 
2. Which advisors do you need? 
3. What clean up projects must be completed?
4. Who's your most probably buyer?

Let's take a brief look at each.

1. What's your business size relative to the market? 

You may not be aware but there are 3 main business markets: Main street businesses, middle market businesses, and large multi national companies. 

Each of these business markets transacts businesses using different tools, strategies, and advisors. It is important to identify where your company falls relative to other businesses so you know what strategies are available to you, which advisors to partner with, and which buyers are most likely to purchase a business like yours. 

Over 90% of businesses transacted are in the "Main Street small business" category and so, for our purposes, those will be the ones we'll focus on in this post. For a quick reference, these are the companies that are found on "Main street USA" (thus the name) like, hardware stores, laundromats, grocery stores, gas stations, doctor's offices, and so on. 

For purposes of comparison, they are NOT the Amazons of the world nor are they the large multi national companies, like 3M, Ford Motor Company, or Apple. 

2. Which advisors do you need? 

If your business falls into the Main Street business category, you will likely need a team of advisors that'll work together to help prepare your business to be sold and and then rely on the team to help it be transferred to the new owner successfully — about 50% of business deals under contract fall apart before closing. Everyone's situation is slightly different and you may need some but not all of the advisors on this short list. 

- Business broker (shameless plug, like me!)
- Deal attorney
- CPA
- Investment Advisor/Financial Planner
- Banker
- Bookkeeper

3. What clean up projects need to be completed? 

I have yet to run into a small business that is perfectly positioned for immediate exit. The reality is that most small business owners have some "homework" to complete before their business can be sold for top dollar to the perfect buyer. Some of the most common clean up projects I see are:

- Bookkeeping and accounting clean up projects
- Legal and contractual clean up projects
- Policies and procedures manuals
- Technology updates
- Customer, vendor, owner concentration challenges.

4. Who's your most probable buyer? 

There are 5 major categories of buyers: 

- Strategic buyer/Synergistic Buyer
- Individual buyer
- Internal buyer
- Private Equity Groups
- Fix and Flip

Most small business owners in the Main Street Market believe that a Private Equity Group or Strategic/Synergistic buyer is their most probable buyer, but they're wrong. The most probable buyer for a Main Street small business is an internal buyer, individual buyer, or a fix and flipper. 

When you know that up front, you can clean up your business and market it in a way that appeals to these most probable groups. And to get your wheels turning, here are a few examples of who your most probable buyer might be: 

Internal buyer: a key employee, an up and coming young professional in your company or professional network, a family member. 

Individual buyer: a corporate retiree who's always dreamed of owning and operating their own small business. 

Fix and flip: a shrewd business person looking to "get a deal" on your business, maximize it's profitability, and sell in a few years. 

There are over 30 mission critical steps in the successful sale and transition of a profitable business and this post is only a beginner's guide. If you'd like more info on where your small business falls, what clean up projects should be your top priority, or who your most probably buyer is, reach out now for a confidential no obligation chat.

In the meantime, I'd love to hear what insight you're taking away from this post — what do you believe are YOUR very next steps? And what can you do to take action immediately?