Exit Planning is Your Business Parachute

We’ve heard plenty of times that it’s imperative to plan for your exit. Well, I interviewed the 2013 Entrepreneur of the Year Jeff Smith on my Podcast, and he told our listeners he wants to ensure you don’t forget the other, more important things like creating value and satisfying customers. As he so rightly says, you need to be ready to exit at any time… it’s your business parachute.

By focusing on these elements more than the exit itself, you will fulfill those mandates and essentially generate your exit plan, eliminate anxiety and create your parachute naturally as you consider your business critically and less passionately.

Why Less Passionately?

Not all businesses are started or run to fulfill a passion. Sometimes it’s filling a void discovered while working elsewhere; sometimes it’s simply the excitement for growth. Whatever your reason, it’s important to be able to take a step back and asses your business the way a buyer or investor would.

Passion is awesome. Fuel that fire! Passion channeled through your business helps you build, grow and succeed as an entrepreneur. It’s an integral part of driving your day-to-day operations as you reach for goals, search for new and better ways to service your clients and even helping your employees improve their quality of life.

Just remember that passion needs temperance in business. Maybe in most things… but we’ll focus on business. When you are this passionate about something, it’s hard to give it up. It’s hard to even think about giving it up. The thing is… you have to give it up someday, so why not start thinking about that now while you’re still passionate about it? This will at least give you the separation you’ll need to do a real plan at a later date.

So What Should I Focus On?

  1. Team Building

Your team is going to carry you forward. The biggest contributing factor to successful transitions post-sale is having a good second line management team in place. Not only do they allow you to be a passive owner in your business, they also de-risk you from a buyer’s standpoint since they won’t have to worry about training new staff or the current staff’s level of competence.

A good team will also positively impact your revenue and profit. Let’s face it: you have way fewer problems if your management team is well-trained and training their staff well. Your staff should be able to service every one of your clients’ needs and push to stay ahead of them if possible. They should be competent and invested so that you don’t need to focus on the day-to-day operations. Are all your staff A-listers?

Right now you might not have the right people in place. But now’s also the time to work on that. You may find that your current team is simply in the wrong positions, in which case you can correct that fairly easily. If it’s a greater issue like fit or performance, you can either choose to train or wipe the slate clean.

Once you have the team you need, your business is being well-serviced and your clients are being looked after. Profits rise, incidents lower and you look like a way better investment.

  1. Build Your Businesses Value

This still isn’t about money… directly. The value you place on your business is likely greater than what another less-biased person would give it. So how do you bridge that gap? You may never reach what you think your company is worth, but you can positively impact your value — you just need to do a bit of planning.

Normally we focus on exit planning. In this case, we’re pointing more at operations planning. On the tail of building a team that can execute your vision as if it were their own, you need to prioritize building value. With your team running at maximum efficiency, you can take a step back and analyze your business’ performance.

… Sounds like exit planning, right? Pretty much. You are going to do a deep due diligence and efficiencies check to see where you can improve operations and reduce costs. This house cleaning will increase your valuation for the same reason as building a strong team: There’s much less for a potential buyer or investor to pick apart when they value you so your valuations should be pretty close, depending on the metric.

Once you have a strong team and have a realistic idea of your value and how to grow it, it’s time to look to the financials.

  1. The Future (Cash Flows and Exit)

Time to forecast! You’ve got a great team that’s performing well, you know what your company is worth to a buyer and you’re working on growth every day. So what are your plans? Your goals? What are you working toward?

This leads to the inevitable question about your exit. It’s a natural extension of everything you’ve been doing to create your successful, well-running business. So now you can pick out your specific cash flow targets, how you want things to progress in the next few years and just take a good general overview of how things are looking for the future.

At this point, it’s easier to specify what you need from a sale — both in the future and if you were to receive an unsolicited offer this week. This is how Jeff Smith was able to be ready to sell at any given moment. He followed these three key things to numerous successful deals in multiple markets.

Where do you see yourself going with your business? How helpful do you find these three key areas to focus on and how well are you doing them?