What are the typical pitfalls founders make when trying to exit their business?

Businesses are all obviously unique but they do often hit similar problems especially when they’re looking to exit their company. The ideal scenario for you, the founder, is to exit the company you’ve worked so hard on with the following milestones achieved:

• The business is at its maximised value;

• The employees are looked after; and

• You’re leaving a positive legacy for yourself. 

This article will give you tips and advice on how to overcome common exit problems and; therefore, help you make your company more attractive to a buyer, resulting in you getting the price you want to sell it for. 

1. Think about management-employee dynamics

Management is where the majority of company issues stem from. This can be because of lack of communication, no delegation, or because of unclear leadership. 

 

These problems directly affect your exit plan because they affect your business. If your business isn’t growing to its maximum potential, then it’s value won’t be as high as it could be and your exit will be less profitable. 

 

This is why it is essential to sort out any managerial problems. Communication can become an issue as the company grows and you gain more employees. The key is to keep the channels of communication clear so everyone knows who to contact for whatever issue. 

 

Delegation is another key aspect of business your company needs to excel at as you grow. It is not a strong business if the founder deals with and controls everything. The workload must be shared such that the members of the company can focus on their respective and specific tasks.

 

Delegation must also be done with clarity and proper expectations. Delegation is not dumping, both sides must understand the task and desired outcome.

 

Strong communication and delegation creates a good leader. Problems arise in companies which affect their exit plan when there are elements of confusion about tasks. 

 

Through effective communication and delegation your company has a much better chance of maximising its value heading towards exit. 

2. Think about what the buyers are looking for

A key thing to have in your mind when you are looking to sell is that some buyers think of risk before reward. This knowledge should influence every decision you make in your exit plan. 

 

The biggest risk a buyer will assess is the risk to the company when the founder or owner, that’s you, leaves the company. Essentially can the company run without the owner. If not then the price of the company will plummet.

 

This comes back to the previous point of delegation and communication in order to make your company a sustainable business machine. Think ‘Will the company continue to function and grow if I take three months away from it?’

 

The second step is to record all of these processes that allow the company to work without the founder. This is essential as it is your proof. To convince a potential buyer you need as much evidence as possible to show that your company will work and continue to grow without you just as you intended it to be. 

 

Create a predictable revenue system. This will, in basic terms, show a potential buyer that the ‘machine’ will continue to produce a strong turnover and cash flow after the sale. 

 

You are looking for repeatable structures. This is how you can be confident in your predictable revenue system and a buyer can have confidence in the company’s structure and potential. 

3. Think about your marketing plan for your exit

Once you have got your company into a position that it is an attractive proposition to a buyer - meaning you can prove it will continue to produce strong turnover and cash flow without the owner - then you need to decide how to market the company to investors. 

 

Marketing your business to investors is as important as marketing your products or services to increase sales but it is a different marketplace. It is essential that you maximise the opportunity to attract the right buyers. If you are unsure how to go about this then you may consider enlisting help from a corporate business broker or a part-time finance director who has experience in pitching and exiting business.

 

You need to understand how to reach your target audience. Your target audience will depend on: 

• Your industry

• The type of people you want to sell to

• How you want to sell

• What you want your legacy to be

    

Corporate business brokers have a wealth of experience selling businesses and their fees tend to reflect that. They may charge not only a fee for time involved but also a potentially sizeable bonus for a successful sale. A more affordable option would be an advisor or part-time director who has the necessary experience but not the high price tag.

Summary

When you are preparing for exit it is easy to take your eye off the ball as it can be a full time job to get it right. Depending on what your day-to-day role is, maybe its leading sales, or looking after the finances or leading the teams generally… maybe all three. If you take your focus away then issues can creep in exactly at the time you don’t want them too. 

 

If you feel like you could be spread too thin through this process you could consider enlisting the support of an experienced part-time director who has been through this process before. This could help you avoid problems before they arrive through diligent planning and preparation as well as guiding through the whole process from beginning to end. 

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This article is brought to you by Boardroom Advisors. Visit their website here: https://boardroomadvisors.co/