As every entrepreneur knows, a great business plan is essential for effectively launching a business. As the business grows, an effective strategic plan is required to successfully reach the business’s full potential.
But what about planning your exit strategy?
Far too many business owners do not realize that careful strategic planning to sell your business is just as important as planning to launch and grow your business.
In addition to an independent lifestyle and personal fulfillment, a successful exit is the primary motivator for business ownership and entrepreneurship.
(Not to mention that a successful exit tends to improve one’s lifestyle and personal fulfillment...)
Because acquisition is the most common exit for an entrepreneur / business owner, here are some tips to better prepare you to sell your business.
Don’t Wait Too Long To Sell
Many business owners wait until the last minute to try and sell their business. They wait until the business is stagnating, or they are exhausted with running the business. In fact, the best time to sell is when business is booming.
But Take Your Time – Don’t Be in Too Much of a Hurry
If you are in too much of a hurry to sell, you will probably leave a lot of money on the table. Buyers – especially sophisticated larger corporations – will likely sense your urgency and will take advantage of it in the negotiation period.
Start the Process Early
It’s a good idea to begin preparing 2-4 years BEFORE the sale. It’s much more expensive and time-consuming to rush and prepare all of the necessary financial and other information in a few months than it is to consistently record and compile records over a period of years. This record-keeping is also important for your business’s growth, since it provides more perspective on your company’s performance.
Get Your House in Order
Make sure that you have been keeping accurate financial records and that your assets are ready for sale. This includes both tangible assets such as equipment and inventory, as well as intangible assets such as contracts, leases, patents, trademarks, etc. Make sure that everything is assignable to the buyer and be prepared for extensive due diligence.
Try to See It From the Buyer’s Point of View
A buyer’s motivations are often different than the typical business owner’s. While the entrepreneurial business owner may get excited about innovation and creative strategies, the buyer cares much more about the potential for stable revenue streams and growth potential. Take time to understand your potential buyer’s point of view, interests, and motivations.
Make Yourself Less Central to the Business’s Success
The buyer wants to buy a business – not you or your job. From the buyer’s perspective, it’s better if the current owner is not important to the success of the business. Therefore, in planning for the sale of your business, you should begin training your management team to take over critical business functions. If all of the key decisions revolve around you (the owner), then the value of the company will be limited without the owner – and therefore, the business is less attractive to a buyer.
Meanwhile, Keep Focused on Running (and Growing) Your Business
When starting the sales process, you must keep a laser-sharp focus on your business’s operations. It’s important that you do not get too wrapped up in either the sales process or in the romance of any particular sale offer. As difficult as this is, it’s best to act as if any deal can fall through, even if you are in the final negotiation period, because any deal can come unraveled at the last moment. Keep your focus on growing your business until the check has cleared and is in the bank.
In addition, you should do your best to keep the sales process confidential so that you do not endanger relationships with any key clients, employees, or partners whose departure could threaten a transaction or the operations of your business.
Get Professional Assistance
If you are a business owner seeking to sell your business, you can benefit from outside advice and assistance. As the old saying goes, “The attorney who represents himself has a fool for a client.” The same applies for a business owner selling without an advisor. Your advisor will provide you with guidance regarding valuation, due diligence, and the marketing of your business opportunity. Without a competent advisor, you decrease your chances of selling your business at its maximum price.
Even if a Deal Comes, Be Prepared to Say No
If you have invested a lot of time and energy into the search, negotiation, and due diligence phases, you may be reluctant to reject any deal that comes across the table. However, just because you have a deal in front of you, you do not have to take it. If the price is not attractive or if the deal is not right for another reason – and it cannot be mended – you may be wise to walk away and consider the next opportunity.
Sometimes, during the process of preparing their business for sale, business owners will find themselves at the helm of a much more profitable, attractive business. If you have a profitable business, keep in mind that you have other options at your disposable. In addition to selling your business, you can continue to grow organically, raise growth capital, and/or explore strategic partnerships.
It’s important to continually evaluate your options throughout all phases of business growth to ensure that you are making the best decisions for the long term.
Founded in 1999, Growthink is a leading middle market investment bank. Our professional investment bankers have assisted clients in raising more than $1 billion in growth financing, as well as advising on mergers and acquisitions transactions.
Need assistance with your business exit strategy?
Consult a professional business plan consultant.
Looking to sell your business?
We have considerable experience advising middle market business owners on the sale of their businesses. Contact Growthink's investment bankers today.
The marketing plan describes your strategy for penetrating the market, delivering your product, and retaining your customers. This video explains how to create an effective marketing plan.
For the new entrepreneur, there are few factors with a higher correlation to unbridled success or devastating failure than the ability to raise capital. In an economy of questionable strength, dreaming up a shiny new venture of revolutionary proportions is no longer the battle; the new challenge is finding the minds that will fuel that venture with dollars. In New York, one business-woman named Yao-Hui Huang has borrowed from popular culture to devise a sensational way to bring new ventures face-to-face with potential investors.
Admittedly, the project known as the Gauntlet is far from the first organized attempt to bring entrepreneurs and investors together. How this differs, is that it emulates the strategies of the highly successful TV show: American Idol. Similar to the show, which employs a panel of industry experts, the Gauntlet has a panel of judges with expertise in law, accounting, finance, technology, and investment.
Contestants who make it through the rigorous application process are chosen in groups of three to present at the monthly gathering. In front of the panel and an audience of over 100, entrepreneurs get seven minutes to pitch their venture along the areas of: problem, solution, market, industry, overview, operations, and financials. Presenters are then inundated with feedback from the audience and panel, and a select few go on to receive venture capital.
It is nice to see a refreshing approach to matching the right investors with the right entrepreneurs. Also, this structure provides the ability to share a business model with peers and experts while allowing the entrepreneur an attractive opportunity to refine, revisit, and hopefully improve areas of their business strategy.
Would your business plan be ready to go through the Gauntlet?
We are proud to highlight two exciting new clients at Growthink: iControl and Pop! Technology.
iControl is a periodical distribution and marketing company and division of The Current Companies.
iControl provides web-enabled newspaper billing consolidation services to newspaper vendors and retailers, including CVS and Barnes & Noble. With more than 8,000 active accounts, iControl is the largest provider of such services in North America by a ratio of more than 2-to-1.
Growthink will be consulting iControl on their strategic planning and business development initiatives.
For more information on our work with iControl, please view iControl's recent announcement here.
Pop! Technology is a Dallas-based creator of 'active' barcode information systems used by the food, beverage, pharmaceutical and health services sectors.
The company's technology transforms a standard barcode into an interactive barcode that provides real time information about the status and condition of their products at all points of the supply and distribution chain, from manufacture to end user.
Watch this video to learn more about how Pop's technology works.
This past May, Pop! Technology retained Growthink to assist with a $2M capital raise to expand their operations.
Here is a recent post on Pop! Technology from Texas Startup Blog.
Your business plan must not only define your competition, but demonstrate your venture's distinct competitive advantage. This video explains how to create an effective Competitive Analysis section for your business plan.
There is an age-old dilemma out there, which all entrepreneurs will come across at some point in their career: To be, or not to be... the CEO, that is the question!
When envisioning the ideal CEO, undoubtedly many images come to mind: A charismatic persuader, a visionary, a multi-tasker, a passionate leader. The real world expectations of a CEO can be so varied and so all-encompassing, that it can be a daunting hat to consider.
Some entrepreneurs tackle this issue with the notion that they are obligated to lead their company from the CEO chair, while others will avoid the title at any cost. These stances are seldom the result of any actual measure of their own abilities, but rather from pre-conceived notions of what is expected of a Chief Executive Officer, and what skills they assume are needed to effectively assume the role.
To add a dose of empirical data to the conversation, venture capitalist Seth Levine has released a rubric that he and his colleagues use when evaluating a CEO. Now that we know what the VCs use when sizing up leaders, it might not be such a bad idea to go through this rubric yourself and see how you'd stack up.
(rate performance on a 1-5 scale, 1 being least favorable and 5 being most favorable; provide support for your rating in the space provided):
Vision: Creates vision and strategy. Communicates vision and strategy both internally and externally.
Leadership: Ensures the support and execution of the vision and strategy by:
1. Establishment and communication of priorities;
2. Driving change for improvement throughout the organization;
3. Team-building; and
4. Creation of high performance environment.
Operating Management: Develops and executes sound long-term and annual business plans in support of approved strategy. Manages operations and resources efficiently and effectively.
Values and Integrity: Maintains consistent values and exemplary conduct. Promotes positive corporate culture to reflect corporate mission statement.
Shareholder/Investor/Financial Community: Serves as chief spokesperson, communicating effectively with shareholders and stakeholders. Is well regarded and respected by investment and financial community.
Strategic Partners: Maintains personal rapport with strategic partners through open, ongoing communications
Human Resources: Ensures the development of effective employee recruitment, training, and plans and programs to provide and motivate the human resources necessary to achieve objectives.
Public Relations: Ensures that the company and its operating units contribute appropriately to the well being of their communities and industries. Represents the company in community and industry affairs.
Board Relations: Works effectively with the Board of Directors to keep them fully informed on all important aspects of the status and development of the Company. Facilitates the Board's governance, compositions, and committee structure. Implements Board policies and recommends policies for Board consideration. Supports a relationship characterized by trust, mutual respect, open communication and responsiveness to feedback. Uses Board meetings effectively.
Financial Results: Financial Results – Establishes appropriate annual and long-term financial objectives and manages to consistently achieve these goals; ensures that appropriate systems are maintained to protect assets and maintain effective control of operations.
As you can see, the criteria for a great CEO (at least in the eyes of these Venture Capitalists) aren't as elusive as many people think. If you've got these skills, you're in good shape. If not, it might be time to start the CEO hiring process.
What do you think about these criteria? Which of these factors are truly the most important? Are there other factors you think are missing?
Last night I went to the art fair at my kids’ elementary school. My son, Max, who’s in 2nd grade had created a picture of his ideal city (see below).
I was thrilled to see that the Growthink office made the picture. :) (It’s also funny to see that the city just had to have a video store in it).
Interestingly, there was something in the picture that I noticed, that I bet no other parent noticed. Can you see it? What I’m referring to is the fact that the Growthink office is the only one with double-doors. Clearly, my son has been schooled in Consumption Theory, which states that the more frequently your clients consume your products or services, the wealthier you become. So, by having double doors, Growthink can let in and serve more clients and create greater wealth (so I can buy my son more video games of course).
My favorite examples of consumption theory in action are Prell Shampoo’s use of the word “REPEAT” in it’s directions to get customers to wash their hair twice (and thus consume twice as much shampoo) each time they bathe. Adding the words “Use Daily” to the directions may have doubled Prell’s consumption again. My other favorite example is Colgate toothpaste, which dramatically increased consumption in an even easier way; it simply increased the size of the opening from which the toothpaste comes out.
How can you get clients to consume more of your products and services?