Business Exit Strategies

Carefully analyzing and preparing your business exit strategy can significantly increase the value of your business. Whatever prompts the sale, selling a business is a high-stakes transaction that can have far-reaching financial and emotional consequences.

To obtain maximum valuation you should start preparing your business exit strategy well in advance. Make sure you give yourself at least a year to perform the necessary changes. To develop and implement a successful value maximizing exit strategy you should:

• Prepare or review your strategic business plan.
• Project yourself as the buyer.
• Implement necessary value maximizing changes, and;
• Sell in a favorable business climate.

Develop a strategic plan

Although you should continuously review and analyze your business, there is no more important time to do so than before a sale. Critically analyze your business using the Porter and SWAT frameworks. Be honest with yourself and understand your strength and weaknesses as well as your competitors. A well thought out strategic direction will help maximize your business valuation.

Project yourself as the buyer

Look at your business from the buyer's perspective. Understand that business weaknesses and threats are usually perceived and evaluated more harshly by the buyer. Typical weaknesses include customer concentration, vendor dependencies, management succession, and regulatory requirements. Also review the sustainability of your continued growth and competitive advantage. After all, your objective is to position your business so that continued growth can be realized by the buyer.

Implement value maximizing changes

After you developed a comprehensive business strategy and reviewed your business from the buyer's perspective, you should have a good understanding of the necessary changes and actions that should take place. Start with the low hanging fruit and work your way up. Make sure a management succession plan is in place and that your financial statements are audited and confirmed by a reputable CPA.

Sell in a favorable business climate

Most business owners make the mistake of looking for a buyer when their business is stagnating or experiencing liquidity concerns. Consequently, the valuation received by the buyer will reflect this trend. To achieve maximum valuation, sell the business during good economic and business conditions. From a macroeconomic perspective, look to sell your business while money supply is high and money cheap. The acquirer will reflect low spot rates in their dicount rate and consequently increase the value of your dicsounted cash flows.

If you have any questions on the above material or want to know how KDS Capital can help you in your venture, feel free to call us at 602-490-0723 or toll free 800-880-0717.