Exit Strategies that Work: Risk Factors and Exit Options for Business Owners

Christine Nicholson is a top business mentor in the UK who specializes in exit strategies. On a recent podcast she spoke to Isar Meitis about key exit strategies for getting your business ready for sale or transfer of ownership.  This article is a summary of the podcast where she provides valuable information on how to properly plan for exiting your business, including understanding the valuation of your business and preparing for potential risk factors that buyers or investors would look at when purchasing your business.  

Listen to the podcast…

ChristIne emphasises the importance of planning ahead to reduce stress and increase chances of a successful outcome. The value of a business depends on its earnings before interest and depreciation, with different tiers of earning having different basis for valuation based on some industry standard rough rules of thumb.  

Risk Factors To Consider 

Within a business, any business, there are always risks.  Usually there are some that are common to each industry.  There are also some risks associated with the size, location and structure of the business.  Each buyer looks for different risks in a business.   

Risk factors are crucial in determining the true value of a business, which requires being upfront about them or taking action to improve their value. The number one risk factor impacting valuation is what potential buyers will find out during due diligence. 

One of the biggest risk factors for buyers in a small and medium-size business is the dependency on the owner.  A business that can’t survive without its owner is essentially worthless because people are not buying the business, they’re buying the owner. If something were to happen to the owner that stopped them working in the business, the value of the investment would be impacted.   

Exit Strategies that increase the value of your business?

You need to reduce your dependency by having good processes and hiring the right people Sounds easy?  Even great processes will only work if you have people doing them correctly with an understanding of their scope of authority or decision-making abilities. Having clarity, consistency and certainty in decision-making processes through systems and processes enables a structure for decision making despite uncertainty.   

 The key to an effective, efficient business that’s worth more is having the right people doing the right thing at the right time for the right reasons.  Can you say that you have that in your business?  What would happen if you left your business for 3 days?  What about 3 weeks?  Or even 3 months? 

What Are Your Exit Options? 

There are many ways to exit your business in a planned way, such as selling it, floating it on the stock exchange (usually out of reach for most small businesses) or selling shares to employees or management teams. It’s important to have a realistic value for your business and focus on what you need versus what you hope it will be worth one day. 

Throughout the podcast Christine and Isar discuss the importance of exit planning for business owners. She emphasizes that it’s critical to align what you want vs. what you need financially and emotionally before making any decisions about transferring ownership or exiting the company. Christine advises hiring external help and getting an evaluation of your business to bridge that gap between what you want (value wise) and what your business is worth today.  

If you are stuck in the day to day of your business or consider that you are essential to the success of your business she recommends reading “The E-Myth” by Michael Gerber.    

Final Takeaway

Christine stresses the importance of being financially educated and knowing how much your business is worth so you can make clear decisions going forward with your personal wealth and circumstances in mind.  

Listen to the podcast…

Are you ready to exit your business (no matter when it happens)? Click here to contact Christine by email alternatively you can book a call with the Business Mentor of the Year 2020, author and speaker. Who helps business founders get their businesses exit ready so they can enjoy a happier, richer future.  She saves them THOUSANDS and increases the value of their businesses by MILLIONS.