When and how should you exit?
Some people seek exit strategies and some people have exit strategies thrust upon them, to mangle a classic quote.
The point is, says WA business coach Pauline Bright, many SMEs don’t consider their exit strategy until it becomes a necessity.
“People don’t think about an exit strategy until they’re on the downward slide, and that’s the worst time to think about exiting a business in terms of realising the return on the investment you’ve put into the business.”
A Commonwealth Bank survey found less than half of small business owners had an exit strategy in place. And of those that did, 22 per cent planned to just shut the doors and walk away.
Get ahead of the game and make a detailed plan now for how you would like to leave your business.
Think of it as a positive, not a negative. The focus of your exit strategy should be how you can make the most of a good situation, rather than how you can escape a bad one.
Selling your businesses as a going concern, with a strong customer base, maximises your returns.
Having an exit strategy in mind will also help inform your priorities as you grow, depending on whether you aim to either retain ownership but hand over management, pass it to a family member, sell it, or partner with another business.
“The best time to sell a business is when it’s thriving,” says Bright, which is, ironically, when people usually feel least motivated to sell. But if you plan ahead, you can prepare to leave your business on good terms.”
Bright says planning a successful exit should start at least three years before you plan to retire or sell as it will give you time to work on the profit margins and all the other things that make a huge difference to the sale price.
In the three years leading up to a planned sale, business owners should focus on databases and systemised processes.
A business with a detailed client lists and proven systems for driving leads, marketing and dealing with suppliers commands a higher price, says Bright.
And if your business has hit hard times, exhaust all your turnaround options before you pull the pin.
Think of it like real estate, Bright advises. You’re not going to get much for a fixer-upper, but if you’ve done enough work to let the potential shine through, your returns will reflect that.
If you have tried everything and it’s still not working, it may be time to consider liquidating. It’s a tough decision, so seek advice and never just walk away.
“A lot of people don’t make that decision because they want to save face. They don’t want to feel like a failure or look like a failure. So, they just close the door and walk off quietly,” says Bright.
The smarter option is to look at what value you can salvage from your business. Can you sell any databases, stock, fittings or intellectual property?
Most importantly, seek professional advice before you make any major decisions. Bright says she recently had a client who arrived exhausted and disheartened after family and friends urged her to give up on her business and “get a job”.
“But there’s no such thing as a safe job these days,” says Bright, who immediately saw a way forward to niche her business and go online, dramatically cutting overheads.
The business owner arrived “down in the dumps, disappointed and disgruntled” and left “absolutely buzzing”.
“Sometimes you just need someone to show you the blue sky,” says Bright.