Exit Plan

How to Build an Exit Strategy: 10 Challenges to Overcome

As a business owner, have you ever considered an exit strategy as a way to grow your business? If not, you are not alone. Most business owners do not have an exit strategy in place because they see it as something they will do in the future. However, having an exit strategy is just good business strategy. By focusing on building a business with the characteristics that drive value, you will not only improve your income and cash flow, but also give yourself more opportunities to exit your business on your terms when you are ready.

In this article, we will discuss the three parts of an exit strategy, how the conventional way of thinking about exit strategies is wrong, and the ten paradigms that have to change for a successful exit.

The Three Parts of an Exit Strategy

The three parts of an exit strategy are: business goals, financial goals, and personal goals. Your business goals are what guide your business forward. They help you fulfill your mission statement and take your business where you want it to go. Your financial goals are the milestones you plan to achieve so that you can live the lifestyle you desire. Finally, your personal goals lay out what’s truly important to you. They’re typically the motivating factors that get you up each day. Today, we’re going to focus on the business goals as they relate to a successful exit strategy. 

3 Parts of an Exit Strategy

The Conventional Way of Thinking About Exit Strategies is Wrong

When you think about growing your business, what comes to mind? Most business owners think about marketing, sales, entering into a new market, or acquiring a new business. However, have you ever thought about an exit strategy as a way to grow your business?

The reason most business owners do not have an exit strategy is that they see it as something they will do in the future. They think it’s about selling or getting out of their business. Well…that’s just wrong. Having an exit strategy is just good business strategy. The best planning you can do happens now, in the present, when you are not ready to exit. An exit strategy doesn’t mean you’re ready to sell–it means you’re building a business that can be sold.

The Ten Paradigms for a Successful Exit

In his book, “Walking to Destiny,” Chris Snyder talks about ten paradigms that have to change for a successful exit. Here they are:

    1. Business is Personal:  

This shift requires business owners to realize that their business should not dictate their lifestyle. Instead, their personal goals and what is important to them should drive their business. Business owners need to understand that their business is there to serve them, not the other way around.

    1. Value is the Long-term Goal, Not Income:  

Focusing on income is important, but it’s not the only thing that matters. Instead, business owners need to focus on building the value of their business. If they only focus on income, they risk neglecting the factors that contribute to the long-term success of their business. Focus on building value and the income will follow.

    1. Focus on the Present, Not the Future:

Contrary to what you’ve probably read or heard from every other advisor and even exit planning publications, building an exit strategy is very much a present endeavor. It’s not about the endgame. It’s less about who you’re going to sell to, when you’re going to sell, and how you’re going to sell, and it’s more about what you do today that will enable you to sell when you’re ready. Be intentional about how you grow so you have a business that you can sell.

    1. Manage Your Five Stages of Value Creation:

Understand what stage of your strategy you are in and continue in that stage until you’re ready for the next.

        • Identify what makes your business valuable, i.e., the intangibles.

        • Protect the value through insurance, contracts with customers, etc.

        • Grow by focusing on what drives value in your business (value drivers).

        • Harvest the value of your business by implementing your exit strategy.

        • Manage the wealth you’ve extracted from your business

    1. Your Intangible Assets Must Be Transferable, Not Your Tangible Assets:

You may know your business inside out, and it might provide you with a great income. Because of that, you might believe someone else would buy your business so they could have the same benefits. Unfortunately, if you’re not structuring your business so that it can run without you–think systems, processes, managers, contracts, etc.–you may find you don’t have a transferable business.

 

    1. Don’t Just Start Projects, Create a Process:

Instead of diving head first into the next project, take the time to stop and create a process for how you want to get it done. Chances are you’ll need to do it again in the future. Building an organized system to get things done builds value in your business.

    1. You Must Execute:

There are tons of “guides” and “gurus” out there that will gladly tell you what you should do and even give you a plan for what to do going forward, but what’s typically missing is the “how to do it.” The Exit Planning Institute has a system that I like to teach. It’s referred to as the Value Acceleration Methodology. This is your execution plan.

    1. Measure Your Results:

Another way to express this is to know the value of your business. I’m not referring to the “tax value.” You want the tax value low so that your taxes are lower. I’m referring to your “real value.” You want your real value to be high because this is an indicator of what someone would pay to buy it. A great way to know if a strategy is working is to ask whether or not it’s improving your real value.

    1. It’s Not About You, It’s About Your Team:

Have you told your team you’re planning your exit? If not, it’s probably because you’re fearful that they will panic and possibly leave. On the contrary, if you let your team know you have a plan for the future that includes them and their wellbeing, they’ll be much less likely to worry. What you don’t realize now is that they’re already worrying what will happen if you’re not there unexpectedly.

    1. You Have to Invest in Your Success:

You may be familiar with buying equipment, software, services, etc. that help you run your business, and those are great. You can easily monitor the process and usage of those things and measure the results. When it comes to investing in your business’s intangible assets, it’s a little harder to quantify. You need to be prepared to spend money to develop your intangibles–people, processes, customer experience, etc. And you need a system in place to track the value. That’s where the Value Acceleration Methodology comes in.

So What Does It All Mean?

Having an exit strategy is just good business strategy. By focusing on building a business with the characteristics that drive value, you will not only improve your income and cash flow, but also give yourself more opportunities to exit your business on your terms when you are ready. Remember, business is personal, value is the long-term goal, and focus on the present, not the future. If you’re willing to start planning now, you’ll be building a sustainable, scalable, profitable, and transferable business that matters; and you’ll be on your way to a successful exit.

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