Not everyone wants to run their company forever, so preparing for an exit strategy early on is key. What’s one piece of advice you’d give for how to do this effectively, and why?
These answers are provided by Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most successful young entrepreneurs. YEC members represent nearly every industry, generate billions of dollars in revenue each year, and have created tens of thousands of jobs. Learn more at yec.co.
1. Eye Up Partners in Advance
You’ll have a better chance of creating an effective exit strategy if you start eyeing up partners in advance. Many business leaders choose to sell their companies to more prominent brands that are capable of scaling up production, customer support and marketing. Building partnerships early in your career can help build your reputation in the community and help you make a humble exit.
2. Conduct a Business Valuation and Exit Assessment
There are different pieces of advice on how to prepare for an exit and maximize the value of your company, however, tactics are different for every business. The number one thing I recommend is a business valuation and exit assessment. This will tell you what the value of your company is today, what the potential value is in the future and what key aspects to focus on in order to achieve that goal.
3. Have a Solid Grasp on Your Financial Situation
A critical piece of advice is to have a solid understanding of your financial situation. This includes knowing how much money you need to live comfortably, as well as how much your business is worth. This information will be critical in negotiating a fair price for your business. By having a backup plan and understanding your financial situation, you can be prepared for anything that might happen.
4. Build an Organization That’s Resilient Through Change
To build something that lasts necessarily means it should be able to outlast the founders. Knowing this from the start, we should always seek to empower those around us and implement processes and structures to build an organization that is resilient through change, including change involving a founder leaving for whatever reason. A strong culture is key for an organization to endure the test of time.
5. Focus on Increasing the Business’s Value
An exit strategy may be why you started your business in the first place, but it’s not an easy process. When you start your company, plan what you can do to make it increase in value with time. One way to do this is by regularly investing in your company’s growth and ensuring you’re profitable. This way, you’ll be able to sell the company for much more later.
6. Keep Accurate, Detailed Records
Make sure you keep clear, accurate and detailed books and records. If you want to sell your business, prospective buyers want to be able to go over all the important metrics related to accounting, legal records, customer databases, marketing systems and all of your business’s essential moving parts. If your books or documentation are incomplete or disorganized, it will be harder to find a buyer.
7. Always Run the Business Like You’re Going to Sell
Run your company like you are going to sell. Keep your books clean, the employees happy, the interior organized and the overhead low.
8. Find Trustworthy Team Members and Help Them Grow
When you grow and start hiring, your goal should be to help others move up the career ladder. The best successors will be the people you’ve trained and nurtured in the business. This means finding trustworthy people who know the company well whom you can trust if and when you decide to leave. Leaders must inspire others, so it’s important to find individuals with both skill set and personality to lead your team.
9. Have a Backup Plan
One piece of advice I would give for how to effectively create an exit plan is to have a backup plan. This means having a plan B for your business if your exit doesn’t go smoothly or falls through. Keep another investor in mind or have a plan to sell your business to your employees. By doing this, you can be prepared for anything that might happen.