Enlisted to Entrepreneur: Your Exit Strategy

By Vicki Garcia

Your Exit Strategy

It may seem strange to think about an exit strategy when you’re just a startup or in the early stage of building your business. But that is the exact right time to think of your exit. An exit plan can determine many decisions you might make for years before you sail off to Tahiti.

How Do You Calculate the Value of a Business?

Take a step back and look at the business you plan to sell from a buyer’s point of view. The simple answer to this question is, how much is the right buyer willing to pay?

The answer can be complicated with a ton of different answers, depending on the context.

1. What stage is your business in? 2. Why would a buyer want your business? 3. Does your business have Strategic Value? 4. Does your business have an Asset Value? 5. What is the Revenue Value of your business? 6. What is the People Value of your business?

The Stage of Your Business

Think of the stage of a business as if it is on a clock. • From midnight to 3am, you’re laying down the framework, inventing new products or ideas, building a brand, establishing a customer base. It’s all new and exciting full of promise. • From 3am to 6am, you’ve established your model, developed a successful marketing effort, hired your employees, and you’re humming along. At this point you figure you’ve got a lock on it and have stopped asked yourself “what the hell am I doing?” • From 6am to 9am, you’re growing, you know what you’re doing, you’re starting to understand your place on the planet and feeling pretty confident. You’ve also attracted competition and copycats because nothing attracts copycats like success. • From 9am to 12noon, you’re government. You’re restrained by “we’ve always done it that way.” You’re rigid. You have policies. And you’ve developed internal issues like carrying a high debt load and overpaid employees.

Strategic Value

Your buyer wants to know what you bring to the deal. They’re not looking simply at your financials. They may be looking inside of their own organization and what they might need to spend to deliver what you’ve already created.

A larger organization may define your value because you may offer a solution to their organization faster than building it. I’m reminded of a small San Diego based company called Sucuri that was bought by GoDaddy, one of many small fries who were made millionaires overnight.

Asset Value

Your company may have assets that drive the value of a deal. Assets can include stuff that can be sold or converted to cash. This can include your brand, a well-established internet presence, equipment, and a significant customer base or multi-year contracts with vendors or clients. Seller owned real estate frequently can get folded into the agreement.

Revenue Value

Simply put, the question of how much the business is generating in profits. What is the trend, is growth fast or slow? Or are you losing money? Whatever you do, don’t cook the books to look more profitable than you actually are. I had a client who thought she was clever in the way she disclosed info and was sued once the deception was discovered. She lost.

People Value

Some buyers are looking at a company because of the staff that are it. The value of that business may be not so much about the revenues and more with its expertise. Or the value of the revenue is enhanced by the expertise of the employees that would come with the purchase.

So those are four different ways that your value may be considered or calculated. You can see how your decisions now may impact your value in the long run. The value of your business is in the eye of the buyer, and it can be much more complicated than what you see here. A smart owner will work with a business broker who can bring potential buyers to the table and who is not emotionally involved in determining value.

Of course, there are always internet sites that can help. https://empireflippers.com and https://flippa.com/ are just two, but there are probably more.

Vicki Garcia is the owner of a marketing firm for over 33 plus years and has worked with veteran entrepreneurs for many years. She is the author of Power Focus, The Little Book of Digital Marketing, and My Startup Journal, which can be found on Amazon.com.

If you would like any of these books for free, please email her at 72146vicki@gmail.com.

2021

G O A L S

www.HomnelandMagazine.com

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