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Business Exit Strategy

A crucial plan in a business sale is a solid exit strategy. First, you must provide clear, concise reasons as to why you are selling the business as the outcome of the sale greatly depends on it. These issues must be addressed far in advance to prevent future mistakes and delays.

Examine Motivations and Desired Outcome

First, honestly identify the reasons for the business sale In a number of cases, it is not only the money that is motivating the sale. For example, many people wish to sell for these potentially following reasons:

  • Retirement
  • Relocation but the business must stay
  • Change in income status and wish of diversification
  • Suffering from burn-out and the need for a change in lifestyle

Other factors could be illness or a death in the family. Sometimes, the business owner may sell low to the first buyer to relieve the stress in their life from the business.

Motivation for an Immediate Exit May Cause a Low Sales Price

When a business owner is in a rush to sell the company, they are not motivated in increasing the business value and strengthening its position, so the transition period may be relatively short, leading to a much lower asking price.  However, if the owner does their own financing, this will increase the amount for the business sale.

Forward Planning can Produce a Higher Sales Price

On the other hand, when a business owner has a strong exit strategy, their execution comes at a much slower rate. Their personal motivations may not be as serious as other owners, such as making a lot of money from the sale in preparation for retirement. This means that these owners have more time to increase  the business value, are more flexible with the owners, can spend more time needed for transition, and can offer the buyer partial financing from the amount of the sale. Even though the sale may take more time, this process will be more beneficial to the business owner.

After-Sale Decisions

Business owners who decide to sell their business must decide their plans post-business sale. Some questions that business owners must ask themselves are as follows:

  • Is the future of the business concerning for you?
  • Are you ready to completely exit the company?
  • Does a partial involvement such as a consultant seem an attractive option for you?
  • Are there certain individuals that you do not want to sell to?

Business owners who are ready to sell their business must also consider the maximum sales price that can be achieved. Also, a new owner may want the previous owner to help with the transition process and maintain the success of the business. The business owners are likely to not want to hand over their business to a competitor, but are more likely to pass it down to a family member.

Seller’s Motivation Impact on the Process

The seller’s motivation to take part of the business sale can have an impact in the structuring of the business deal. The seller must carefully look at their reasons to sell their business in order to create an effective exit strategy.

Eliminate Potential Conflicts

After the seller gives their reasons to sell their business and when the buyer is ready to hear or talk about offers, conflicts may arise. This includes owners demanding a higher price or a desire for as little disruptions as possible upon exiting the company. Therefore, it is important to remain flexible as major conflicts could disrupt the sale.

Rank Priorities and Create the Sales Strategy

A business broker is a great resource to deal with conflict resolution because they are experienced in making the business sale process as seamless and painless as possible for both parties. They are often only compensated once the sale is complete so they are strongly incentivized to see it through. A strong pre-sale plan will not only help get through the sale, but provides support to the business in achieving the best sales price.