How an Exit Strategy Helps Grow Your Digital Business

How an Exit Strategy Helps Grow Your Digital Business

November 8, 2017
Lisa Baker

As a business broker, I attend quite a few different networking events, and it never fails.

Whenever I introduce myself to people and let them know what I do for a living, they automatically get defensive and tell me that their website or business isn’t for sale.

This happens even though I haven’t shown any intentions of pitching them on my services, or asking them if they are ready to sell.  You can see the nervousness fill their faces, afraid that I’m going to trap them in a hidden sales pitch.

As a professional, that’s something I would never do.  Making the decision to sell a business can be incredibly personal, and something I don’t necessarily want to be involved in.

I’ve always recognised the amount of time and effort that goes into building a business and am honoured to be trusted to help them sell, once they have come to the conclusion on their own.

I am shocked, though, at the huge number of entrepreneurs that don’t have some type of exit strategy or plans in place to make an exit one day.

Instead, they seem to be operating their business on the assumption that they’ll own it forever, or that the chance they will sell it is someday in the far future and they don’t need to pay attention to it now.

This is a huge mistake.

By putting their heads in the sand when it comes to thinking about an exit strategy, these business owners are missing out on quite a few different benefits.  Two of the biggest benefits of having an exit strategy are:

  • Guiding them towards building a strong and viable business, and one that’s great to own.
  • Building the business around remaining flexible in terms of the end result for the business.

How Exit Strategies Help Your Business Now

Having an exit strategy in place is more than just selling your business — it will help you structure the business now.

To help you understand this concept, think about what makes a business valuable to an investor that’s looking to purchase it.

Here are a few traits of a business that’s great to buy:

  • Consistent earnings.
  • Minimal risks.
  • Easy to own.
  • Strong growth potential.
  • Great financials.

Here are a few traits of businesses that are great to own:

  • Consistent earnings.
  • Minimal risks.
  • Easy to own.
  • Strong growth potential.

See the similarities?

If a business is attractive to buyers, it means that it’s also great to own as a business owner.

The traits of a great business can help you gain insights into your own business.  As you begin to grow, you’re going to be faced with difficult decisions.

By focusing your decisions on those traits that will make your business more attractive for buyers, you’re going to benefit by building a business that’s great for you to own.  You’ll clear the path to grow your company in big ways.

How to Get Flexibility from Your Exit Strategy

A few years ago, I had a potential client come to me.  He owned a small-sized eCommerce business that focused on selling sports equipment directly to his customers, schools, and other municipalities.

His store was built well, easy to operate and had been growing consistently year after year for several years.  Like so many other entrepreneurs, though, the client wasn’t happy with just a “good” business.

He was ready to capitalize on the success he obtained in the first business and set his eyes on bigger prizes.  His new business attracted investors that were ready to make a stake in the business as long as he was willing to put up some of his own capital.

Since he didn’t already have the money they required, he started reaching out to banks to obtain a loan.  The banks agreed, but would only give him the money if he sold his first eCommerce business.

Thankfully for this client, he had built the business around an exit strategy, which gave him the flexibility he needed to make the moves he’d set his eyes on.

After a few short months, he sold the business and the investors were able to match the capital he was putting into the new business.

Most entrepreneurs simply don’t think about selling their business until the need to sell it actually comes up.  He was an exception to the rule because he built the business around an exit strategy so when the need came up he was ready to go.

Over the last 12 months, I have recommended many entrepreneurs simply wait to sell their business so that they can focus on making the business more attractive in order to increase the asking price.

How to Build an Exit Strategy into Your Business

You’ll want to ensure that the strategy you’re putting in place is customized specifically to your own business and that you’re consulting with an expert that is familiar with buying and selling businesses.

With that being said, you can start putting your strategy together by focusing on the four main factors that are going to make the business attractive to investors:

Mitigating any risks.  Find any potential risks and then take the steps you need to either minimize them or even completely mitigate them.  Investors are going to want to be able to grow the business without incurring undue risks.

Identifying growth potential. If there is potential left in your business, either capitalize on it yourself or create plans for your future investor to capitalize on it.  Buyers will love to find out you’ve shown them how to grow the business once they take it over.

Making sure the business can be transferred.  If there are any portions of the business that are tied to you, personally, start figuring out how you can remove yourself from the equation without the business declining.  Investors want to ensure they can maintain what you’ve built after you’re gone.

Making your numbers verifiable.  It’s unfortunate, but many successful businesses have poor accounting, which makes it hard for an investor to get behind the business.  Make sure you have documented your financials, relationships with suppliers and vendors, traffic reports and that those can be easily verified.

As long as you’re focusing on these four factors, you may not necessarily have a full exit strategy, but you will be moving in the right direction and have a huge positive impact on your business in the process.

The end result will be a business that’s not only great to own now, but one that is going to be incredibly attractive to buyers should the need to sell ever come up.

Author bio: Jock Purtle is a digital business broker and entrepreneur. He is passionate about working with business owners to fulfil their business goals.

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