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Business Exit Strategy: 5 Tips for Selling Your Company

, | May 31, 2023 | By
Male in business attire behind a top view of a maze with a blue marker tracing the exit.

Selling your business can be a stressful, time-consuming, and emotional experience. However, a well-planned business exit strategy can help make the process much easier. Are you interested in selling your company, but unsure of which steps to take? Keep reading to learn more!

What’s a Business Exit Strategy?

An exit strategy is a plan that’s used when leaving or selling a company. Entrepreneurs, investors, and venture capitalists use business exit strategies to help sell assets or reduce losses. Having a clearly-defined exit strategy is crucial and can help you make difficult decisions, especially when facing emotional stress or outside pressure. It helps protect business owners, the enterprises they run, the board members they serve, the employees they hire, and any individuals who may have invested in the organization.

A few well-known types of exit strategies include strategic acquisition, initial public offerings (IPO), management buyouts, and selling. Other examples of exit plans are mergers, liquidation, and bankruptcy. Having a business exit strategy plan is also helpful to ensure a smooth transition when leaving one’s business to another individual or company.

How to Create a Business Exit Plan

Organizations of all sizes and types need an exit strategy. You may want to leave your business for many different reasons. Perhaps you launched your business intending to sell it after meeting certain financial objectives. Or maybe you’re planning to retire and want to pass the company on to someone else. The following steps can help you create an effective business exit plan:

1. Get your company’s finances in order.

First, create an in-depth report of all finances. Among other things, this should include the company’s:

  • Current balance sheet
  • Cash flow statement
  • Annual tax returns
  • Insurance policies
  • Supply and distribution agreements
  • An in-depth business profile
  • Assets
  • Expenses
  • Liabilities
  • Business performance

2. Get a business valuation.

A pre-money valuation assesses a company’s value prior to its public offering and without any third-party financing. The amount invested is the price investors must pay to realize a positive ROI, while the post-money valuation is the value of the company after the investment is made.

Essentially, the pre-money valuation and the amount invested will equal the investors’ ownership percentage after venture capitalists have invested in the company.

When carrying out a business valuation, it’s vital to include dividends and liquidation preferences to understand if the proposed valuation is correct. Once you’re given an initial number, don’t be afraid to ask for a higher valuation. Make sure to provide sufficient evidence and a convincing counter-argument as to why you believe the business is worth more. Remember to highlight the maximum potential exit value of your business.

During this phase, it can also be helpful to hire a professional business valuation expert who can analyze business records such as financial statements, budget plans, cash flow projects, liabilities, and any important market information.

3. Consider hiring a business broker.

A business broker helps with the purchase and sale of a business. They’ll help obtain an attractive price, ensure that all paperwork is completed correctly, and double-check that all license and permit requirements have been properly followed. A business broker earns a commission based on a certain percentage of a business sale, which varies by state.

4. Identify the best time to sell.

The ideal time to sell your business can fluctuate, depending on the industry it belongs to, the current state of the economy, and the ultimate goal of the business owner. The best time to sell is often after a business experiences consistent growth amidst an expanding market, but it can also depend on the desired outcome of the seller.

5. Find a buyer.

Selling to someone you know can be an ideal way to exit a business, whether it’s a family member, colleague, partner, or even an employee buyout. This allows you to train and prepare your successor to take on the role of owner. Some business owners will even remain employed part-time or take on a consulting role within the company. Selling to a similar business may also be helpful.

What Are Your Business Goals?

Cunningham and Associates are here to help you achieve your business goals, from business valuations to the right exit strategy. Subscribe to our blog now for helpful updates that can help you meet your financial objectives.

Feel free to take a look at our exit planning information in order to connect with our certified exit planning advisor team. Here’s to a successful transition!