There is no denying that an exit strategy is a strategy that every business owner needs to have in the back of their minds but sometimes this is more complex than we would like to believe it is. Selling your business can provide you with a lot of good options but unless you completely understand exit strategy and the best way to implement it, you are going to be stuck with a business that you either cannot sell or that you cannot get its worth out of when you do sell.
That is why there are 5 principles that you need to know before you even consider selling your business. These principles are simple enough to understand but they are helpful enough to give you some valuable insight on whether or not your business is ready to be sold.
1. Is your business Saleable?
2. Are you ready to sell your business?
3. Is this the best time to sell?
4. Are you personally committed to selling?
5. Does it help your life plans in the long term to sell your business now?
These are the 5 principles that you must keep in mind if you are thinking of selling your business. Since it can be hard to see how all of these principles play out in a real-life scenario, here is a situation that might help you to understand just how these principles relate to you.
Ok, let’s take Mr. Smith. Mr. Smith has been operating his own handyman business for about 10 years now. He has built up a pretty good chunk of savings and is thinking of retiring… seeing as how he is close to 55 years old. But to help add some stability to his savings, he is thinking of selling his business. However, since he is not sure whether or not this would be profitable for him, he decides to use these 5 principles and examine his business to see if selling is the best choice.
First, is his business saleable? Well, he has a steady stream of clients who keep him busy full time… plus new inquiries for work every week. He keeps two employees busy full time and his records for the past four years show steady growth and profit. So yes, his business is saleable.
Now, is he ready to sell his business? Since he is getting ready to turn 55, he is really ready to retire. He wants a life beyond his business and he decides that this is a good time for him to get out.
Next, in terms of the economy, is this the best time to sell? Well, it is the middle of the summer and his business is always the strongest during the summer. Also, he just got a motor replaced in one of the company vehicles and for the last 5 months he has been putting money back into the business to upgrade tools and equipment. Also, the handyman economy is booming in his local region. So yes, it seems that it is a good time to sell.
Next, is he personally committed to selling? Well, he really wants to be done working, because he wants to be able to travel and enjoy his retirement free of the stress a business brings. So yes, he is totally committed to selling.
And finally, does selling help to accomplish his long term plans? Well, selling the business for a good price would help him to realize his dream of investing in the stock market, which he has always wanted to do but never has gotten the chance. It would also allow him to sleep in on weekday mornings and travel in his camper when he wants. So yes, selling the business helps him accomplish his goal of a successful retirement by the age of 55.