Why Will Every Owner Exit Their Business and How Can You Best Prepare For This?

Posted on January 30, 2023

This is Part 1 of 2 in a mini series we are doing on business exits.

For both our Blog and Podcast episode, we brought on Stuart H. Sorkin, the Managing Member at Business & Legal Advisors.

Let’s dive into this important question!

What Are the Ways a Business Owner Will Exit Their Business?

Every business owner will exit their business in 1 of 6 ways and only 1 of 6 ways.

  1. Sell it to Family
  2. Sell it to Management
  3. Sell it to a Third Party
  4. Become an Absentee Owner
  5. Gets Liquidated
  6. Death

If they do not choose one of the first four the last 2 will happen. This is why exit strategy starts the day you start your business.

You need to start thinking about some preliminary options because depending on who you are selling to, may change how you build and develop your business.

What Major Areas Need to Be Looked at When Looking at a Business Exit?

  • What are the personal goals of the owner or owners?
  • Business Plan Strategy – Where are you looking to take your business? How are you going to get there? What steps need to be done this year, next year, next 5 years, etc. to accomplish your goals?

Last week we discussed, What is Strategic Planning?, which is a great start to this process.

What Are Some Ways to Make Your Business More Valuable?

  • Become an Absentee Business Owner
    • The more your business can run without you, the more valuable your business will be. Not to mention, in the case of an emergency it will make the transition so much smoother as well. This is the importance of developing a management team or key employee that is engulfed in the day-to-day operations of your business.
    • A business is like a three legged stool: accounting & finance, sales & marketing, and product delivery. All business owners start out doing all three, the successful ones figure out what they do not like doing or are not good at and they either bring in a partner or key employee to handle.
  • Golden Handcuff Your Key Employees
    • A purchaser wants to know the business will remain successful after a sale and the best way to help achieve that is to keep the key employees that make your business turn everyday. Putting together strategies to reward key employees to stay on, post sale, will create immense value.
  • Specific Service / Product / Niche (Not a mile wide and inch deep)
    • Are you concentrating your time and costs in the areas of your business that will bring you the highest profitability?
  • Others
    • Are you too dependent on one or two customers? This may hurt.
    • Do you have preferences that can be passed to the acquirer?

Key Quote from Stuart Sorkin:

No matter what your plans are to sell your business, you will sell it when someone wants to buy it. This means in some ways you always have to be ready for sale because you do not know when that person is going to come in.

That is why it’s important, when you are at that level, to build your due diligence file and update it periodically.

Check out our Podcast episode for the full interview with Stuart and if you would like to be connected with him, go to the contact page on our website and send us a message or check out his website here.

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