Every business owner should have an exit strategy set in place in their business from day one. I know that right now you might be thinking that you love your business and you want it forever. You are never going to exit it. Or you might be thinking that it is years away and you don’t need to worry about that yet. This is a mistake.
At all times, you should have an exit strategy set up for your business and in reality, know a couple of different strategies at any given time. Does that mean you exit? No, but you should have a strategy ready to implement at any time.
I’ve seen many franchisees HAVE TO exit their business because of an unplanned event. Maybe there has been a death in the family or an illness. I’ve seen people have to exit their business because their partner has got the opportunity of a lifetime – just on the other side of the country. All of these people have had to exit their business and were not prepared for it. This has meant that they have had to go through an extremely stressful and emotional time unprepared (which only makes the stress and emotions worse), they have had to sell their business for below its value or worse still, walk away from their business entirely.
In the end, a good business is a saleable business. So even if you have no plan to exit your business, having a good business will help you. It only takes a few moments longer to put things in place to make your business a saleable business.
For example, if you have a database of clients, it will only take you a few moments longer to make notes on each of your customers so that if you ever had to sell, this turns into a great benefit of your business. If someone buys your business, they have the low-down on all of your customers.
Keeping your financials up to date makes it easy to sell your business and it is also a good business practice just for running your business.
Keep photos, notes, marketing materials, anything that may be helpful if you were ever in a position where you had to sell due to an unfortunate event.
At the same time, know how you will exit the business when you are ready.
Many business owners tell me they are going to build their business up and then sell it and that will be their retirement fund. Funnily, most people say they will sell it for a million dollars – that’s their goal. Well, that is a great goal, but if no one would pay a million dollars for your type of business, then that is just a dream, it is never going to happen.
The great thing in a franchise is, that you should always be able to sell your business for at least the current asking price for a brand new franchise, right? In the general business world, you may want $100,000 for your business, but with no comparable sales or documented value, then it is worth nothing. In a franchise you can show value.
When I’m working with clients, I get them to think in terms of cashflow in their business rather than sale price at the end. Make your money whilst you own your business rather than on a sale price. You make your money in a franchise whilst you own the business, not on the sale price.
When you value a business, it is generally 2 to 5 times the yearly profit. That is, if your business is making $50,000 profit per year, your business will be worth somewhere between $100,000 and $250,000. That is the figures on paper, but that is not the reality of the situation.
If your franchise is more of a self-employed model, then you are very unlikely to find someone who will pay $250,000 to generate $50,000 a year profit or in effect, pay $250,000 a year to buy themselves a job. They might pay $50,000 or perhaps maybe $100,000 if you are lucky, but never $250,000.
The challenge with most business owners is they are not thinking logically about their business. They will always believe it is worth more because of all the years of hard work they have put in. Remember, you make your money as you go in a business, not necessarily on sale.
I know this could be a very different thought pattern for some of you, but just because your business is worth X dollars on paper, that doesn’t mean you will be able to sell it for that.
There are a lot of factors into making a business saleable, but the biggest one is that it has to be a good business – for the buyer.
Take some time to work out your exit strategy. What is your ‘ideal plan’? That is what is your exit strategy that will take place when you are ready. Then also work out your ‘emergency plan’. How will you exit if you have a life crisis or emergency or something that is not in your ideal timeframe occur? Then simply, work out what needs to be done in your business to make that exit strategy possible. Is your business sale ready? Do you have the legal structure correct to exit? Have you spoken to the franchisor about exit strategies in crisis situations?
This may not seem a priority for you right now, but it is important to be prepared. Ask for help if you need to.
I was once catching the ferry from near my brother’s house to home. It was 7.30pm at night – dark, but not late – and in a safe area of town. I thought I was doing the right thing by sitting in the ferry ‘hut’ (because it wasn’t really a terminal, just a little hut) because it was light filled. The challenge came when a drunken man nearby made me nervous. Now luckily, my best friend called me and she suggested I get out of there and I was on the phone so great way to get past him without alerting him to the fact that he was making me nervous. The challenge was, there was only one exit and that was up the ramp, past this drunk guy and onto the street. This guy did chase me by the way. It was pretty scary and I did make it safely out of the situation (I ran fast to the 7-Eleven a block away and got inside). My friend called my brother who hot tailed it down to get me. Once I was safe, my brother simply asked, what was I thinking sitting in the ferry terminal by myself? I told him that I thought it was a smart choice because it was light filled. He then told me that it was crazy because I hadn’t thought about an exit plan. He cautioned me to have an exit plan always.
I tell you this as a cautionary tale. Even though I thought I was doing everything right, I didn’t have an exit strategy. This is when I became far more passionate about exit strategies with my clients. You may not need it, you may be in a safe place, but you just never know when the unexpected could happen and you need to know how to exit and you should always place yourself in a position that you have multiple exit options.
Work out your exit strategy, or should I say strategies, for your business.