Women's Business Blog

Entrepreneur's Tip of the Week: 3 Steps to Exiting the Business

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There is no greater joy or feeling of success for an entrepreneur than to have a thriving, revenue-producing, high margin business. Even during these tough economic times, entrepreneurs are finding ways to make money and build their businesses. Too often these same entrepreneurs are not taking the time to plan for an exit from the business. The fact is smart entrepreneurs plan for their exit when profits are at their highest or when cash flow is tight. Your job as an entrepreneur is to have a strategy regardless of your economic cycle and be prepared to exit when you have the opportunity. Unfortunately, too many entrepreneurs don't have an exit strategy and never sell. It is estimated that only one out of every six businesses sell. So, what happens to the other five? The owner gets burnt out, cash strapped, and/or dies and the doors close.

You have a choice. You can plan an exit strategy or you can take your chances and fall into the category with the majority of entrepreneurs and let life happen. If you choose to plan, then let's get started with your first 3 steps to your exit.

First, because you are an entrepreneur and put your blood, sweat and guts into your business your business screams YOU. You will be told that your business can not stand without you because the business is you and therefore has no value without you. Of course, almost every business is started by a passionate entrepreneur who is known by its customers, clients, vendors and community as the driver of the business. But this is as true of John Doe of John Doe CPA & Associates as it is for Bill Gates of Microsoft. The success of the business was, of course, the result of the entrepreneur's passion, enthusiasm, reputation, intelligence, and complete focus and attention. But every business can, and will if planned carefully, take on its own momentum because of its product(s) and/or service(s). Just look at Microsoft! You, the entrepreneur must hire a rainmaker so that you are not considered the only one who can sell whatever it is you are selling. If your business can afford it, it is best to have at least two key employees driving sales and business development other than yourself. Buyers are looking for proof that the product(s) and or service(s) offered by your business can be sold by someone else than you.

Second, in planning an exit is the relationship of the people in your business to you and the company. Many entrepreneurs have started their businesses with key employees who have been instrumental in the success of the business. As the entrepreneur begins to plan an exit,(s)he understands how important these key employees are to a potential buyer. Whether or not you contract time with the buyer after your exit your key employees are critical to the sale. In planning for an exit, an entrepreneur should have all employees sign a contract with the business as well as a noncompete. This can be a very informal document that states the allegiance of the employee to the company. It in no way should be threatening to the employee as its purpose should be as much in their best interest as in the best interest of the business. Loyalty is a two-way street...or at least should be. The contract for key employees should include some type of incentive or bonus plan creating the purpose for the document in the first place. Employees understand the need for confidentiality, particularly in today's competitive environment. And, most, will understand and appreciate your desire to behold them to you and the business. Don't make the mistake of many entrepreneurs and believe that their allegiance to you will withstand the change of ownership in the company! You and your employees DO NOT THINK alike! You are the boss. They work for you. If and when you sell your business, they will work for the new owner and their commitment to the company is part of the value you will receive in the sale. Don't under estimate the importance of this step in your exit strategy.

Third, make sure a potential buyer can follow the money. This step is so simple yet so many entrepreneurs miss it completely. Buyers want to know how the cash flow in your business works. How, when, where and what is the income. And how, when where and what are the expenses. The gross revenue in your business is only one reason a buyer wants to purchase your business. More importantly, the buyer wants to know what the true net revenues are and how your cash flow works. Most entrepreneurs in every size business play with their cash flow. They certainly have the right to do so. However, when it comes time to bring a buyer in to review the numbers the buyer is unable to follow the money. So, in your exit strategy planning you must make sure a potential buyer can follow the money easily for at least three years. Not only will it make the difference in getting you a sale it will most likely get you more money for the business. You can be the most talked about business on the planet but if your numbers don't make sense a buyer will not move forward with an offer to purchase.

Begin today with these first 3 steps to exit your business and you'll be on your way to a successful exit strategy.

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