WHAT TO READ NEXT
Identifying why strategic plans fail
Exit planning is a significant strategic initiative undertaken by entrepreneurs as they look ahead to the future.
A successful exit planning strategy seeks to focus on increasing firm valuation (often referred to as enterprise value). This, however, does not occur quickly. At best, it is an exercise that can be started with some results being delivered in one to two years. However, successful exit plans are those that upwards of three years to plan and execute. This allows organizations to invest (or divest) in various parts of the organization that can help drive valuations for prospective buyers.
Because of the close proximity that entrepreneurs have in building the organization and the emotional attachment of watching it grow, entrepreneurs may often struggle to understand what buyers are looking for and may even be slow to act on the decisions necessary to support higher valuations.
A few things to consider if you are evaluating a potential exit:
- What is your company worth? The first step in assessing if an exit today is feasible is to baseline the value of the firm.
- What are you willing to accept? Closely aligned to what your company is worth is understanding what you are willing to accept. This is perhaps one of the most difficult questions to answer but often can be considered in terms of cash flow over a certain number of years. Also remember that there is a time-value of money, which means that businesses may get $3 million in EBITDA for the next 20 years or seek to have a $30 million offer for their business today (not suggesting that is the right valuation here). However, $30 million invested today over the next 20 years could be worth more at the end of those 20 years than had you waited.
- What are the motivations behind exiting? Considering the factors impacting the decision to exit is critical to ensuring the seller feels fairly compensated when the transaction closes.
- What are your requirements for sale? Many business owners consider retention plans for key business leaders, employment contracts for essential workers and other prospective promises to ensure business continuity. While not all requirements are met, it is important to identify the prioritized list of requirements.
FEATURED INSIGHTS
Competitive vs. comparative advantage
