Business Growth & Exit Ready Weekly - October 2: Mastering the Exit: Why Business Owners Sell and How to Build a Valuable, Sellable Business

Welcome to the Business Growth & Exit Ready weekly newsletter! October 2nd, 2024.

This is your weekly dose of resources, strategies for growth, scaling, profit maximisation, and lucrative exits. This week, let's explore Mastering the Exit: Why Business Owners Sell and How to Build a Valuable, Sellable Business. The vast majority of business owners do not prepare for this, and that is why more than 80% of businesses don't sell.

Quotes of the Week:

"The most successful business sales occur when owners have spent years deliberately building value and preparing for the transition." - Dr. Noam Wasserman, Dean of Yeshiva University's Sy Syms School of Business

"Exit planning isn't about giving up or giving in. It's about taking control of your business's future and your personal legacy." - Holly Magister, Founder of Exit Promise

"The best time to start thinking about your exit is the day you start your business. The second best time is now." - John Warrillow, Founder of The Value Builder System

Topic of the Week:

Mastering the Exit: Why Business Owners Sell and How to Build a Valuable, Sellable Business

Unlocking Your SMB's True Potential: A Strategic Guide to Profitable Transitions

For small and medium-sized business (SMB) owners, the decision to sell is as pivotal as the initial choice to start one. For many SMB owners, their business represents years of hard work, innovation, and personal investment. Yet, there comes a time when considering an exit becomes not just an option, but a strategic necessity. This article delves into the top reasons business owners decide to sell and emphasises the critical importance of early planning with the right partner to build a valuable, sellable business.

The Countdown Begins: Top 10 Reasons for Selling

One - The Retirement Dream

After years of building and nurturing their business, many SMB owners look forward to a well-deserved retirement. The sale of their company often serves as the cornerstone of their retirement plan, providing the financial security needed to enjoy their golden years.

Bo Burlingham, author and editor-at-large of Inc. magazine, notes, "The best exits happen when the owner has planned for them from the beginning."

Two - Burnout: When the Fire Fades

The relentless demands of running an SMB can lead to burnout. Long hours, constant decision-making, and the weight of responsibility can take their toll, prompting business owners to seek an exit strategy. This one is huge. I wrote a whole newsletter about it: Beating Burnout: Rekindling Passion and Productivity in the Workplace.

Three - Health Concerns: A Wake-Up Call

Personal or family health issues often serve as a catalyst for selling. The need to focus on recovery or caregiving can make managing a business untenable.

Four - Market Timing: Striking While the Iron is Hot

Savvy entrepreneurs recognise when market conditions are favourable for a sale. This could be due to industry trends, economic factors, or the company's strong performance.

Five - Succession Struggles

The absence of a clear succession plan, whether due to lack of interest from family members or the absence of suitable internal candidates, can drive SMB owners to seek external buyers.

Six - Shifting Landscapes

Industries evolve, and what once was a thriving business model may face obsolescence. Forward-thinking business owners may choose to sell before market shifts negatively impact their business value.

Seven - New Horizons: The Entrepreneur's Itch

Serial business owners often sell successful ventures to free up capital and time for new opportunities that align with their current passions or market trends.

Eight - Life's Curveballs

Significant personal life changes such as divorce, relocation, or shifting family dynamics can necessitate the sale of an SMB.

Nine - Partnership Dissolution

When business partners find themselves at an impasse, selling the company can be the most amicable solution, allowing all parties to move forward independently.

Ten - Innovation Fatigue

Keeping pace with technological advancements and competitive pressures requires constant innovation. SMB owners who feel unable to meet these demands may opt to sell to more capable hands. Sound familiar?

The Power of Foresight: Why Early Planning is Non-Negotiable

Planning for a business exit is not a last-minute endeavour. It's a strategic process that should begin years before the actual sale. Here's why:

Value Maximisation

Early planning allows SMB owners to identify and address areas of the business that may be underperforming or undervalued. By focusing on these aspects well in advance, SMB owners can significantly increase the overall value of their business.

Operational Excellence

A well-planned exit strategy involves streamlining operations, documenting processes, and building a strong management team. These improvements not only make the business more attractive to potential buyers but also ensure its continued success post-sale.

Financial Optimisation

With time on their side, business owners can work on improving financial records, reducing debt, and increasing profitability – all crucial factors in determining the sale price.

Tax Efficiency

Early planning provides the opportunity to structure the sale in the most tax-efficient manner possible, potentially saving significant amounts of money.

Emotional Preparation

Selling a business is not just a financial transaction; it's an emotional journey. Early planning gives SMB owners time to mentally and emotionally prepare for the transition.

The Crucial Role of a Business Growth Partner

Navigating the complex process of preparing a business for sale is not a solo endeavour. A skilled business growth partner can be instrumental in achieving a successful exit. Here's how:

Strategic Vision

A business growth partner brings an objective perspective, helping entrepreneurs see beyond day-to-day operations to envision the company's full potential.

Value Enhancement

These experts can identify opportunities for growth and improvement that business owners might overlook, significantly boosting the SMB's value before sale.

Network Access

With extensive networks in the business community, growth partners can connect SMB owners with potential buyers, advisors, and other key players in the sale process.

Negotiation Expertise

Experienced partners bring valuable negotiation skills to the table, ensuring business owners get the best possible deal.

Emotional Support

The process of selling a business can be emotionally taxing. A trusted partner provides not just practical advice but also emotional support throughout the journey.

Growing and scaling a business is no easy feat, let alone building a valuable sellable business and preparing for and going through an exit. Get help!

Planning for Success: The 3-5 Year Roadmap

Ideally, SMB owners should start planning their exit strategy 3-5 years before they intend to sell. Please do not wait. Start now. This timeline allows for:

1. Financial Clean-Up: Ensuring all financial records are accurate, up-to-date, and paint a positive picture of the company's fiscal health.
2. Operational Improvements: Implementing systems and processes that reduce owner dependency and increase efficiency.
3. Team Building: Developing a strong management team capable of running the business without the owner's daily involvement.
4. Growth Initiatives: Implementing strategies to boost revenue and profitability, making the SMB more attractive to potential buyers.
5. Market Positioning: Establishing the business as a leader in its industry through strategic marketing and branding efforts.

It is important to note that not all businesses sell. Only 10%-20% end up selling.

The Hidden Value: Growing Through Acquisition

One often overlooked strategy in preparing for a business exit is growth through acquisition. A business growth partner can help identify and execute strategic acquisitions that:

1. Expand market share
2. Diversify product or service offerings
3. Acquire valuable intellectual property or talent
4. Increase overall company value

By successfully integrating smaller companies or competitors, SMB owners can significantly enhance their company's appeal to potential buyers.

Bypassing the Middleman: Selling Without Brokers

While business brokers can play a role in the sale process, many successful exits are achieved without them. A skilled business growth partner can guide entrepreneurs through a direct sale process, which often results in:

1. Higher sale prices
2. More control over the sale process
3. Better buyer-seller alignment
4. Reduced fees and commissions

The Art of Letting Go: Transitioning Out of Day-to-Day Operations

One of the most crucial steps in building a valuable, sellable business is for the owner to gradually remove themselves from daily operations. This process not only increases the business's value but also ensures its sustainability post-sale.

1. Building a Self-Sustaining Business
2. Focusing on Strategic Leadership
3. Documenting Processes and Knowledge
4. Gradual Transition

Cultivate a Culture for Growth and Acquisition

Creating a culture that aligns with your exit strategy can significantly enhance your business's value and attractiveness to potential buyers.

1. Fostering Innovation and Adaptability
2. Emphasising Scalability
3. Developing a Strong Employer Brand

Charting Your Course to a Successful Exit

Building a valuable, sellable business is a journey that requires foresight, strategic planning, and deliberate action. By understanding the reasons that drive business owners to sell, and by implementing strategies to enhance value – from early planning and partnering with growth experts to cultivating a strategic culture and leveraging M&A opportunities – SMB owners can position themselves for a successful and rewarding exit.

Remember, the best time to start planning your exit is now, regardless of how far off you think that day might be. Every step you take towards building a more valuable, self-sustaining business not only prepares you for a future sale but also creates a stronger, more resilient company in the present.

Grow and Scale to Exit Successfully

Don't leave your business exit to chance. Take the first step towards securing your business legacy and personal future:

1. Assess your current business value and identify areas for improvement.
2. Begin documenting your processes and gradually reducing your day-to-day operational involvement.
3. Explore partnerships with business growth experts who can guide you through the value-building and exit planning process.
4. Start cultivating a culture of innovation, scalability, and strategic growth within your organisation.
5. Consider how M&A might fit into your growth and exit strategy.

Remember, building a valuable, sellable business is not just about the end goal – it's about creating a thriving, resilient, highly profitable business that serves you, your employees, and your customers better every day. Start your journey towards a successful exit today, and watch as your business transforms into its best possible version.

Powerful Questions for Business Owners to Consider

1. What is your true motivation for selling your SMB?
2. How dependent is your business on your personal involvement?
3. What steps can you take today to increase your business's value over the next 3-5 years?
4. How well-positioned is your SMB to withstand market changes or economic downturns?
5. Have you considered the emotional impact of selling your business, and are you prepared for life after the sale?

Book of the Week:

Finish Big: How Great Entrepreneurs Exit Their Companies on Top by Bo Burlingham

In "Finish Big," Bo Burlingham, editor-at-large of Inc. magazine, provides a comprehensive guide to planning and executing a successful business exit. Through in-depth interviews with business owners who have sold their companies, Burlingham uncovers the key factors that contribute to a satisfying exit. The book covers:

1. The importance of early exit planning
2. Strategies for building a valuable, sellable business
3. The emotional challenges of letting go
4. How to find the right buyer
5. Ensuring the business thrives after the sale
6. Life after the exit

Burlingham's book offers valuable insights and practical advice for SMB owners at any stage of their entrepreneurial journey, making it an excellent resource for those planning their exit strategy.

References

1. Burlingham, B. (2014). Finish Big: How Great Entrepreneurs Exit Their Companies on Top. Portfolio.
2. DePamphilis, D. (2019). Mergers, Acquisitions, and Other Restructuring Activities. Academic Press.
3. Prichard, S. (2020). Sell Your Business for an Outrageous Price: An Insider's Guide to Getting More Than You Ever Thought Possible. AMACOM.
4. Snider, L., & Englander, S. (2017). The Complete Guide to Selling a Business. NOLO.
5. Robbins, S. (2021). The Exit Strategy Handbook: The BEST Guide for Selling Your Business. CreateSpace Independent Publishing Platform.
6. Harvard Business Review. (2022). HBR's 10 Must Reads on Sales. Harvard Business Review Press.
7. Wasserman, N. (2012). The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton University Press.
8. KPMG. (2023). "M&A Outlook 2023." KPMG International.
9. PwC. (2022). "Global M&A Industry Trends." PwC.
10. Deloitte. (2023). "The State of the Deal: M&A Trends 2023." Deloitte.

Rod Fraser - Business Growth Mentor + Investor - Business Growth Strategies Pty Ltd

Helping Business Owners to Grow, Scale, and Exit for Maximum Value

Are you a 'Switched On' Business Accountant?

We are looking to partner with and collaborate with 'Switched On' Business Accountants and Strategic Accountants we can refer to and partner with to help growth-minded SMB owners to grow and scale, including getting them exit-ready, helping them grow through acquisition, and taking them through an exit. If this is you, let's talk!

Places to Connect

Connect on LinkedIn: Rod Fraser's LinkedIn Profile - If we connect, I want to learn about you and chat. I am up for interesting conversations with interesting people. Please understand that relationships come first. Then maybe business, referrals, or more interesting chats.

Join our LinkedIn Group: Business Growth & Exit Ready Network - Connect with business owners, professionals, and investors focused on business growth, scaling and preparing for profitable exits. This is a network, and it's about relationships, not just fleeting connections. Gain insights, share experiences, and access resources to help you achieve your business goals.

Check out our last two newsletters from Business Growth & Exit Ready

September 25th: Thriving Through Uncertainty: Strategic Approaches to Challenges for SMBs Going Into 2025

Here is our last article: The Power of 'How's it Going?': A Simple Strategy to Transform Your Accounting Practice