10 Benefits of Having an Exit Plan
Benefit #3 – Know Exactly What Your Business is Worth
Your business is quite likely one of the biggest assets that you have but do you understand its true value?
In most cases a business will have involved a large upfront financial investment either to purchase it from someone else or to build it from scratch, the chances are that it has also required a large investment of your time.
With this in mind it is good to understand what the current value of your business is, this is something that ideally you should look at on a regular basis, not just when you are thinking of selling.
By understanding the true value of your business you can not only plan properly for the eventual sale but you can make immediate changes to increase the value.
If the value is not where you want it to be and more importantly where you need it to be then there are a number of things you can do to change this before you go to market, in the meantime that will also equal more profit for you.
The days of testing the market are dead, the market is a lot smarter and more well informed than it has ever been. If you go to market overpriced now you are likely not going to get any serious inquires, those that you do get will also likely drop out before settlement.
On the other side of the coin if you under value your business you could be leaving literally tens of thousands of dollars on the table.
It is a very fine line when valuing your business, I won’t go into detail in this post as I have written plenty of other posts about this subject but it is crucial that you get this right, especially when selling.
There is a lot of confusion about the term “Exit Planning” and what it involves, like most things it can be made as difficult or as easy as you want. I am a big fan of keeping simple and for me this whole process is really just about increasing the value of your business.
Exit Planning is just good business strategy.
By taking an objective view of how much the market would currently pay for your business you have a starting point to work with. From here there are a number of levers that you can pull to increase the value.
By going through the process of valuing your business a number of factors will be considered and benchmarked vs industry standards. Naturally some of these factors will be beyond your control but you may be surprised about how many you can influence.
As a simple example, if you go through the appraisal process and find that your net margin is lower than that of comparable businesses then there is an opportunity to increase your income, your annual net profit and the level of multiple that you can ask for the business when you sell. This can make a massive difference to the value of your business but unfortunately many people don’t look at detail like this until they are thinking of selling.
When I start working with people on an exit or value growth plans it is quite common to find that there are either no real measurement or monitoring systems in place or that they are not accurate. By having clear, regularly measured results it allows you to spot potential issues and adapt quickly. As they say, “that that is measured improves”.
Regardless of what stage of the business cycle you are at I would encourage you to work out what your business might be worth and compare that with what you would consider selling for (the next post will cover any difference in those figures and next steps).
One you have gone through this process you are going to be clear on where the value is and what you can do to improve it.
If you need help with this you will find plenty of resources in the files section of our Exit Planning group (look for the download links).
If you need some 1:1 advice you can book in a time to have a chat about your business and its potential value here.
Good luck
Paul
