Selling Your Business in the Next 5 Years? Consider These 3 Tips For A Successful Exit.
The writing is on the wall. Your wife’s been hinting for a while, and lately you’ve caught yourself dreaming about summers at the cabin and winters playing golf down south.
It’s not time to ride off into the sunset and sell your company yet, but it’s coming and you find yourself wondering what you can do now to prepare for the inevitable future–the sale of your company.
Here at Doescher Group we work with business owners to ensure you make the most of your once in a lifetime opportunity to sell your business, by helping you position yourself and your business for exit in order to send you confidently into life’s next adventure.
Regardless of industry or business size, every business owner can consider these three basic principles if you want to yield the highest price in the sale of their business.
Exit Tip #1: Become Owner Independent
The act of removing yourself from the everyday happenings of your business is the simplest, yet hardest part of exit planning for most business owners.
If all decisions flow through you, it’s possible that your business might not be saleable at all.
A critical qualifying investment criteria for 3rd party buyers today is the strength of the management team. Investors are looking for an investment opportunity, not a headache. If they are going to have to remake the entire organization so that it will function without you around, they are going to significantly discount the value of the company, if not lose interest completely.
If you’re the owner that does it all, you have some work to do to free your company from needing you every minute of the day. But it can be done, little-by-little. It will require a lot of training, some internal promotions, perhaps some outside hires, and a new level of delegation. This is the hardest part of exit planning for many business owners, but if you cannot follow through on this one, the value of your company is likely to remain on the low end of what’s possible (at best).
Exit Tip #2: Diversify Your Revenue Sources
Diversifying your company's revenue sources doesn’t only benefit your company in a sale but provides you with a solid foundation enabling your business to withstand the volatility that will inevitably come your way. Diversifying your revenue sources can take many forms depending on your industry, geography, etc.
In the case of what’s relevant for you, it is critical to limit, as much as possible, the amount of concentration with any one customer, product, service, or industry. Additionally, you are going to want to make sure that you are appropriately positioned in the relevant areas that are considered “hot” or high growth.
This may be explained easily by an example. Let’s assume you provide services exclusively to big box retailers.
Here are some questions to ask before selling your company:
How many big box retailers do I have as customers?
What percentage of sales does my largest customer comprise? Am I diversified in my sales volumes?
Am I working with the best big box retailers? The ones that are growing, that are financially sound and expanding their store footprints?
What are the year-over-year trends in my customer sales? Are they growing, shrinking, or stable?
How are big box retailers faring compared to other potential customer groups that I do not currently pursue? Are there more attractive customer groups that I could be pursuing?
Are there additional services I could be offering to my existing customer base?
You are an entrepreneur. You operate on instinct. It’s possible that some of these questions seem a little silly. But when it comes to selling your business these will be questions you’ll be asked, and will be rewarded if you are able to answer well.
Exit Tip #3: Favor Recurring Revenue
Investors and potential buyers of your business prefer recurring revenue over one-time projects. One-time projects are temporary and cannot be relied upon by most investors. Yes, even if you can show a history of winning consistent one-time project work, this type of revenue will never receive a premium valuation.
That said, profitable, recurring long-term relationships, and if possible long-term contracts, are gold. We’ve seen this most obviously in software. Historically, we purchased a copy of Microsoft Office or Adobe Illustrator, but today everything is “rented” for a monthly fee.
This recurring revenue methodology has created a much more predictable stream of revenue for companies, which investors love. Predictability is a key ingredient in the value equation and businesses that can deliver it are assigned premium valuations by the marketplace compared to their peers.
Ready to Get Started Increasing the Valuation of Your Business?
Hopefully this article has piqued your interest and you’re ready to get started with building your exit strategy. If this is you and you don’t know where to start, or you’d like us to take a look at your business and give you our advice please reach out to Doescher Group to learn more about how we can help you exit your business successfully. If you are the kind of person who likes to be prepared, an Exit Audit as the perfect starting point for you to prepare for the sale of your business.
Reach out today if you’d like to see how we can help you sell your business with confidence and ease.
