Don’t miss a million dollar pay day – why you need an effective exit strategy
Preparing yourself and your business for exit or succession is no different whether you are a franchise or not, with one possible exception.
You may need approval from the franchisor on acceptability of your potential acquirer, so it’s important to check your agreement for any conditions/restrictions so you can address them from the outset.
Doing the right things today ensures a successful exit in the future. It doesn’t require a focus on the ‘end game’. It requires you to focus on now. It’s not about choosing between today and the future. Identify your value drivers (and value killers), instigate action plans and then ask yourself this question every 90 days: “Do I continue to grow, or do I want to sell?” However, a plan gets you nothing if you can’t execute. Exit planning is grounded in action. It is only through action that we can create the life we want and harvest the value of our businesses.
WHAT CAN I DO TODAY TO MAKE MY BUSINESS MORE VALUABLE?
You-Proof Your Business
It can be tempting to run your company as your own personal fiefdom but the sooner you get it running without you, the more irresistible it is likely to be. To be valuable to an acquirer, your business must be able to succeed and grow without you at the hub of all activities and your employees mere spokes that cannot operate independently of you.
Customer Satisfaction
Most business owners know intuitively how satisfied their customers are, but as their companies grow, some owners lose touch with their customers. Being able to objectively measure the satisfaction level of your customers is essential to maintaining their loyalty.
Competitive Advantage
Differentiation = unique and meaningful. Think about what differentiates your business from its competitors. If you´re not sure what your point of differentiation could be, focus on finding something that is both unique and meaningful to customers, and stake a claim to it.
Recurring Revenue
One of the biggest factors in determining the value of your company is the extent to which an acquirer can see where your sales will come from in the future. If you´re in a business that starts from scratch each month, the value will be lower than if you can pinpoint the source of your future revenue. A recurring revenue stream acts like a powerful pair of binoculars for you to see months – even years – into the future, so creating an annuity stream is the best way to increase the value of your business.
Cash Flow
The more cash an acquirer needs to inject into your company, the less they will pay for it. The inverse may also be true: the less cash your acquirer must put into the business, the higher the price they will likely pay. Your goal should be to create a business that accumulates cash as it grows. In addition to maximising your overall profitability, having money in the bank makes running your business much more enjoyable.
Dependence on key supplier, customer or employee
A business´s sellability requires the business to not be overly reliant on any one customer, employee or supplier.
Suppliers: Spread your business around – even if you lose some special pricing discounts. Neutrality is worth more than a few dollars in savings.
Employees: If you´re too reliant on any one employee, you are at significant risk if that employee chooses to leave and at a disadvantage when it comes to negotiating his or her salary. To avoid this situation, nurture a pool of people you want to hire.
Customers: If you´re too dependent on any one customer, your business will be highly unstable. Try to work your customer concentration down to a point where your largest customer represents no more than 15 per cent of your revenue. You´ll sleep better at night and have a more valuable company when it comes time to sell.
Growth Potential
Acquirers typically pay the most for businesses with the potential to grow. What would have to change in your business for it to handle 10 times the number of customers?
DO I CONTINUE TO GROW, OR DO I WANT TO SELL?
How does your business stack up on these key value drivers? There are many other elements to consider, including your personal readiness, but first and foremost is maximising the value of your business.
Kerry Boulton is a Value-Acceleration specialist, Certified Value Builder, Certified Exit Planning Advisor and Founder of The Exit Strategy Group. Kerry works with entrepreneurs to build a valuable business and create a fulfilling, purposeful life after business. She is also author of Million Dollar Pay Day: How to Get Rich and Get Out…Creating the Perfect Exit Strategy and Life After Business.
To find out how Kerry can accelerate the value of your business (and for a FREE copy of her book – just pay postage) visit:
www.TheExitStrategyGroup.com.au