Oct 6, 2023

5 Strategies For Entrepreneurs To Create Valuable Exit Options

If you’re a business owner with aspirations to sell one day, the path forward can be overwhelming. There are many questions to consider including:

  • Who should own your business after you? 

  • How long does it take to prepare your business for sale? 

  • What can you do to maximize your company’s value?

Let’s explore how a few successful entrepreneurs navigated these questions for their eventual sale.

1. Financial vs. Strategic Buyers: Understand Your Options

When it comes to selling your business to a third party, there are two primary options: financial buyers and strategic buyers.

  • Financial Buyer

    Financial buyers are primarily interested in your business’s future profit potential. To make your business attractive to them, you should focus on minimizing risks, creating recurring revenue streams, diversifying your customer base, and nurturing a competent leadership team. The more profitable your business appears to be, the higher its value in the eyes of financial buyers.

  • Strategic Buyer

    Strategic buyers, on the other hand, are more concerned about how your business will enhance theirs. They assess how owning your business can help them sell more of their products or services. While strategic acquisitions can result in higher valuations, there may be fewer buyers, as there are typically only a few potential strategic buyers in each industry category.

For a strategic sale, it’s critical to articulate what problem your business will solve for them. Consider Nick Kellet’s Next Action Technologies, which initially received a financial offer slightly less than its revenue. However, by strategically positioning his Venn diagram software to align with Business Objects’ needs, Kellet secured a deal worth more than five times his company’s revenue.

2. Have A Sell-Ready Business

Why should you have a sell-ready business? The answer lies in the unpredictability of the markets and finding the right buyer. Factors such as the economy, interest rates, and market conditions can all affect a buyer’s appetite for acquiring your business. Buyers tend to buy on their timeline, not yours.

Preparing your business for a sale is like helping your child pursue their dream of being a professional athlete while ensuring they have a solid education as a backup plan. You may position your business for a spectacular exit to a strategic buyer, but also consider backup options of selling to a financial buyer.

3. Create an Exit Timeline

The timeline for getting your business ready for a successful exit varies. It depends on the readiness of the business and personal readiness of the owner. Generally owners might start the exit planning process within 3-5 years of the intended exit.

Give yourself more time to increase business value if you’re facing a potential gap. Consider that you may need to start 5-7 years sooner to improve your business’s financials, enhance transferability, and reduce risk.

4. Understand Buyer Motivations to Reverse Engineer Your Exit

Why would a buyer be interested in your company?

  • Understand what is motivating their interest.

  • Recognize what pain points you solve for them.

  • Estimate what it would cost and the time required if they were to replicate your business.

Understanding the motivations of potential buyers can enable you to reverse engineer your exit. David Wible, the founder of Industry Weapon, spent six years building relationships with strategic buyers and private equity groups. This allowed him to gain insights into their investment decisions, adapt his business model accordingly, and ultimately sell the company.

5. Work With A Business Transition and M&A Advisor

You’ve built your business with the help of others, why sell your business on your own? Seek expert advice from Business Transition and M&A advisors to achieve your personal, business, and financial goals:

  • Use tools like the Value Builder questionnaire to learn how your company is performing across critical value drivers and benchmarks within your industry. 

  • Get a business valuation to understand what your business is worth, learn competitive comps, and identify potential areas of improvement.

  • If your business is sell-ready, reach out to an M&A intermediary. They will guide you through the complex selling process– from developing a competitive market, to negotiating and closing. An M&A advisor quarterbacking the deal can be invaluable to ensure a successful exit and avoid exit pitfalls.

Preparing your business for a successful exit requires focus and intention. Having a business that can be sold at any time means you’re creating valuable exit options. With more time on your side, you’ll have more time to plan for an exit without regrets.

If you want to explore strategies for your exit, go to TheBusinessTransitionSherpa.com to schedule a complimentary Business Transition call.

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The Business Transition Handbook

The Business Transition Handbook

Preparing owners to navigate the emotional and practical nature of the transition process so you can exit on your terms and avoid succession regrets.

“A game changer to help you win in your exit and in life.”