How to Create a Solid Exit Strategy
Every business owner is different, but one thing you share with others is that you will leave your business someday — one way or another.
Planning for that day should happen three to five years before you want to exit your business. However, by setting your exit strategy at the start when you build your business plan, you can get the most out of your business and make a smooth transition.
Adding a group of professionals, including business brokers, to your team early can help you plan a solid exit strategy to walk out the door with your goals accomplished and your business in good hands for the future.
Here’s how you can create a solid exit strategy.
What Is an Exit Strategy?
An exit strategy is a detailed, step-by-step plan for leaving your business while maximizing its value. A well-thought-out exit plan accounts for all stakeholders, finances, and operations, and it provides a road map to your company’s goals and new directions, whether you’re at the helm or not.
Whether you plan to sell your business to a family member, a close associate, an employee, or an outside buyer, building your exit strategy can be a lot of work. Business brokers can guide you through the planning process and the later exit, leaving you to run your business to maximize its value.
Key Steps to Building a Solid Exit Strategy
Having an exit strategy puts in writing the outcomes you want to achieve over the lifespan of your company. This helps you and your team set goals and is attractive to potential buyers who value an exit plan as a commitment to your vision for your business. Here are key steps to consider.
Your Goals
Determine the business and personal outcomes you expect when you exit.
The Market
Analyze industry trends, economic conditions, and potential interests of buyers to determine when you might leave.
Your Management Team
Buyers want to know the business can run without you. Set clear responsibilities, delegate work, and empower decision-making.
Value of Your Business
Get a business valuation and maintain a strong balance sheet. Knowing the value of your business can help you identify where you can build more value before you exit.
Succession Plan
Whether you plan to sell the company to a family member, employee, or outside buyer, identify and prepare someone or a team to run the business in your absence.
Due Diligence
Gather and order financial records, contracts, and legal documents for potential buyers to review.
The Right Exit Strategy Starts With a Plan
Having a plan that covers these key steps can help you have a smooth exit whether you leave in five or 20 years. Working alongside business brokers early can go a long way to getting the most out of your business when you’re ready to step out the door. Business brokers have deep knowledge about markets, an understanding of buyer psychology, and experience in exit planning strategies. Having business brokers lead a team of professionals — accountants, attorneys, and financial advisors — can help build and execute your exit plan while you continue your business.
Steps to Selling Your Business With a Professional Business Broker
Whether you’re looking to retire or you just want to move on to a new business venture, selling your company brings a tremendous sense of accomplishment. However, the logistics of selling that company can quickly become overwhelming.
As you may already have discovered, the challenges of selling a business are quite different from the challenges of running one. But when you work with business brokers, you can rest assured that the sale is in the hands of competent professionals — and that you’ll have the time to keep your company running smoothly right up until the sale.
Here’s an overview of how the sale process works.
Step 1: Choosing Your Broker
A successful sale starts with the right broker, so you should take your time when making a selection. Here are some tips to help you ensure you choose the right broker:
Make sure the broker has experience in your industry
Make sure they have experience selling businesses of a similar size to yours
Verify their licensing information
Ask them about their marketing plan
Ask for past client references
Take your time with this process. You should also make sure your broker is someone you feel comfortable talking to — communication skills are an essential part of what business brokers do!
Step 2: Business Valuation
Business brokers can take the time to evaluate your business and give you a highly accurate, fact-based business valuation. While you can get a general idea of your company’s value through online calculators and similar tools, a precise valuation is an essential part of the sales process.
Step 3: Finding Potential Buyers
While business brokers excel when it comes to marketing businesses, many do not need to publicly list a company to find a potential buyer. That’s because brokers maintain active networks of people interested in buying companies like yours. That means they can quickly assemble a short list of would-be buyers for your consideration.
Step 4: Choosing a Buyer
Your broker can handle communications with potential buyers, but ultimately, the choice of buyer is up to you. Your broker can discuss your available options and help you select your preferred buyer.
Step 5: Negotiation and Deal Structuring
This is an area where experienced business brokers can more than make up for their fees. Your broker can negotiate a price and various contingencies with buyers, and once you agree on the terms of the sale, the broker can draw up the necessary contracts.
Step 6: Post-Sale
A broker’s job doesn’t end when the sale is finalized. Selling a business often comes with significant tax implications, and your broker can help you navigate them.
Are Business Brokers the Right Solution for You?
While working with a business broker might not be the right choice for everyone, it makes the sales process simpler and leads to increased profits in the majority of cases. When you take the time to find an accomplished broker with experience in your industry, you’ll be well on your way to a stress-free, successful sale.
How Beneficial Are Business Brokers for Selling My Sole Proprietor Business
Building a business from the ground up as a sole proprietor can be incredibly challenging. But if you’ve done the work, you might decide that it’s time to sell and move on to your next business venture.
You likely already know that business brokers are essential when it comes to selling larger businesses. But what about sole proprietorships? Here’s a look at how business brokers can make a major difference in the sale process.
They Know How to Find Buyers
Business brokers maintain a network of buyers who are eager to purchase businesses. When it comes time to sell yours, your broker will connect you with enthusiastic potential buyers.
What if you already have a buyer in mind? You’ll still benefit from working with a broker because they help with more than just finding buyers.
They’re Expert Negotiators
Since you’ve worked so hard to build up your sole proprietorship, handling the negotiations yourself isn’t a great idea.
Negotiating a sale price for a business isn’t like haggling at a flea market. Business brokers sell businesses day in and day out, so they’re well-versed in the difficult art of negotiation. They’re also familiar with changing trends in your industry, so they will be able to tell you whether an offer is worth taking.
They Can Help You Minimize Tax Liability
Most business owners sell with the goal of getting as much profit from the sale as possible. However, the more profit a sale generates, the more you’ll owe in capital gains tax.
The way a sale is structured can make a dramatic difference in the amount of tax you owe, and business brokers can help you design a deal structure that keeps your tax liability as low as possible.
Tax code is difficult for most people to understand, and the fact that it’s constantly changing doesn’t make it any easier. Brokers keep track of changes in tax code and can use that knowledge to execute successful sales.
They Save You Time
If you’re going through the process of selling your business while you’re also running it, you may have already found that it’s a challenge to manage both. This is particularly true during the due diligence process, where the buyer can request many types of documentation:
Bank statements from the past 3 to 5 years
Tax returns from the past 3 to 5 years
Financial statements from the past 3 to 5 years
Any relevant leases or contracts
Insurance policies
Employee handbooks and official protocols
Business brokers can help you find and compile this information ahead of the due diligence process. You can trust them to handle the logistics of the sale so you can dedicate your time to your business.
Are Business Brokers Right for You?
Selling your sole proprietor business is a major event, and it’s something you need to plan with caution. When you work with a business broker, you have a professional on your side to take charge of finding a suitable buyer, getting a fair sale price, minimizing your tax liability, and ultimately, saving you time.