What Is Your Exit Strategy

July 10, 2013
# min read
Mike O'Reilly

According to a Mass Mutual survey nearly a third of business owners do not have an exit strategy. A PriceWaterhouse Coopers survey said 43% of their respondents had done little or no exit planning. The most popular exit strategy according to the PriceWaterhouse study was “Sale to Another Company”.

 

Tom West of The Business Brokerage Press reports 20% of the millions of businesses in the country under $10 million in annual revenues are for sale each year. However, less than 25% actually sell.

 

My question to you is what is the value of having a clear concise vision of what your business could become ten or fifteen years out along with a plan that clarifies not only what the business will look like, but what resources will be needed to achieve it?

 

Go a step further, what would be the advantage of having a strategy that everyone in your organization buys into? When this plan is clear and documented, each employee can understand what must be done in a designated time frame to achieve a desired outcome.

 

Exit Strategy Rule # 1. Develop A Strategic Plan and Execute It

Ken Ducey, President of Princeton Capital in Wilton, CT specializes in getting very favorable terms for privately held businesses that are looking to sell. Ken makes clear to all of his clients that “our business started due to the incredible inefficiencies involved in business transfers. The greatest cause of inefficiencies is lack of planning”. Ken says, “The lack of planning will certainly leave money on the table, but it does not end there. Everyone from employees, customers, vendors etc. are better served by a smooth transition.”

Strategic planning is simply deciding what you want your business to become and then allocating the necessary resources to achieve the objectives. If you plan to build a successful enduring business, you must focus on more than just making sales,scheduling billable hours or doing paperwork. In planning a successful exit strategy you will focus more on visionary activities, leading people and putting systems in place.

 

Without action all the visioning and planning in the world will be meaningless. I have seen numerous companies hire consulting firms to create these beautiful strategic plans that simply look good sitting on the shelf. Once you decide on your strategy and determine your most important objectives, make sure to include action steps, measurement tools and follow up. Who will do what by when?

Exit Strategy Rule # 2. Your Business is worth infinitely more by what it does without you than with you.

 

If you went to the south of France for six months would your business run as well as it does when you are there each day? If the answer is yes, you have a very valuable asset.

If your business is all about you, it’s not worth much at all. There is simply too much risk for a buyer. Ken Ducey will tell you he can get three to five times more for a business with documented systems in place than one without a clear plan and strategy. This is why if you do not have a strategy in writing he will politely tell you, “I really can’t serve you to the best of my ability until you have one.”

 

Exit Strategy Rule # 3. Distinguish yourself from thecompetition with a clear mission and values system.

 

If only 25% of companies that come to market actually sell in a given year, you need every competitive advantage on your side. Remember, most of these companies are a lot like you.They are good at what they do and have a long track record of success. Yet there are no buyers.

In addition to a clear vision, your plan must answer what must be done in a designated time frame to reach the desired end result. This is your mission statement. It’s purpose is to keep you and your leadership team focused on the very important few things versus the non-critical many things.

 

What are your organizational values? Business owners often tell me their greatest frustration is their people don’t take initiative, and can’t, or won’t, make decisions on their own. Yet without clear organizational values, decision making can be difficult.

 

For example, your shipping supervisor receives a call at 4:50pm. The customer needs something yesterday.Your shipping supervisor believes the company is trying to save money.

The decision? No overtime. We will send it out tomorrow.

The next day, you lay into him about not meeting customer needs and the customer is always right Yada YadaYada. You scream. He walks away feeling 6 inches tall.

 

Two weeks go by and the same scenario occurs. The shipping supervisor authorizes overtime and arranges aspecial delivery. Nothing will get in the way of satisfying this client. The next day you notice $50.00 in expenses to deliver a $100.00 part. You say, “Are you crazy? Spending that kind of money in a recession no less. They weren’t even that great a client”.  

 

This whipsaw effect will immobilize your people because they will become fearful of being yelled at either way. The following words come from my good friend Gerry Ryan, CEO of DGC Capital Corp. and one of the largest retail construction companies in the Northeast.

“When you clarify your organizational values and communicate them consistently you will go from being a good company providing good services to becoming a world class organization with numerous options for growth”.

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