How a Founder Can Plan and Prepare For a Calculated Exit Strategy 

Blog / Business Intelligence, Enterprise Strategy, Entrepreneurship / How a Founder Can Plan and Prepare For a Calculated Exit Strategy 

As a founder or business owner, you’re likely focused on sustainable expansion while crafting your company’s growth strategy. However, adopting the mindset of a true entrepreneur involves balancing current dreams with future realities. At some point during business ownership, there will come a time when you’ll want to transition away in some capacity.

Planning a calculated exit strategy is similar to preparing your house for sale. In real estate, most people complete a series of steps before listing a property on the market, such as making improvements inside the home, enhancing curb appeal, and staging the interior to look its best in pictures. They may also invest substantial resources in the home – both time and money – during the course of their ownership, like adding square footage and upgrading appliances over time to increase the value and ensure a top-dollar transaction when the time comes.

As a business owner, you must be proactive and take steps now to build up the value of your business in preparation to transition ownership down the road. If you wait until the last minute to contemplate your exit, you’ll be selling the company “as-is” when it could be in a much better position to earn a premium valuation and outsized return on your investment. To get your business ready for future transition, you must understand your exit options, ways to maximize enterprise value, and how to execute the strategy.

Exit Strategy Options

There’s more than one way to transition ownership of your company. Here are some common exit strategies and their differences: 

  • Merger – your business combines with another business to form a single entity
  • Acquisition – another operating company or investment firm buys your company outright or acquires a controlling interest in the business
  • Succession – ownership and/or control of your business is passed on to the next generation of operators; this is most commonly used when transferring to relatives and/or existing employees
  • Acquihires – another business buys your company primarily to retain your employees, rather than to gain control of its assets, products, or services

It’s important to understand your options and carefully consider the best outcome for you, your business, and your employees. The strategy or strategies you choose to pursue will influence how to best prepare for an exit.

Increasing Your Company’s Value

Prior to envisioning the optimal outcome and plotting strategies to enhance your business’s worth, it’s first critical to understand the value drivers of your company and understand today’s valuation.

What makes your company valuable? What are the levers you can pull over time to optimize your unique value drivers and mitigate weaknesses that could negatively impact your ultimate exit valuation? There are three primary types of value drivers – growth history and future potential, operational efficiency, and financial strength – which may include the following elements:

  • Economies of scale
  • Financial performance 
  • Management and employees
  • Market strategy, differentiation, and branding
  • Customer base
  • Growth plans and remaining white space

Once you’ve identified the most compelling value drivers for your business or industry, and you understand how they are performing, you can build strategies to boost your company’s valuation. For example, let’s say your financial performance is strong, but you’ve been so busy with the day-to-day operations that you haven’t given much thought to growth. On the flip side, perhaps you’ve been so focused on growth that you’ve had to take on an outsized amount of debt to fund your expansion. Either scenario would yield a suboptimal valuation at exit, so you need to understand the optimal mix for your business and build strategies to get there.

Businesses are complicated, and markets are dynamic and complex, so that can feel like a daunting task. But you can take action right now to increase your valuation. Start a monthly assessment of your P&L to identify opportunities to expand revenue and cut costs, and do this from the bottom-up and the top-down. Look for opportunities to generate more cash flow so you can reinvest those proceeds into improving your business and enhancing your value drivers.

How to Execute a Calculated Exit Strategy

Your exit strategy should involve a mix of current and future steps. There are tasks you need to stay on top of in anticipation of a future transition as well as duties to fulfill once your decision has been made and the plan is in motion. 

  1. Get organized and clean house – make sure your financial statements are complete and accurate, thoroughly document all business activities, and identify internal processes that need to be built and/or refined – anything you leave for the next owner(s) to clean up will detract value!
  2. Know your goals and options – consider various exit strategies so you can pivot as necessary
  3. Streamline business systems – for example, if you have multiple locations and/or franchisees, maintain a consistent and standardized chart of accounts across the enterprise and get all of your retail locations on the same POS system
  4. Evaluate company value – know what your business is worth and continue to increase value by optimizing your value drivers; a good way to do this is to engage with a business broker or investment banker
  5. Speak with investors and minority owners – introduce your transition plans to partners and get their support; it’s possible your next buyer is already at the table!
  6. Maintain a reasonable leverage profile – you need to grow your business and fund expansion opportunities, but do so with the understanding that (a) your debt will likely be subtracted from your enterprise value, and (b) the next owner will be less likely to buy if you’re company is already running at its max debt capacity
  7. Validate potential buyers, investors, and/or successors – identify and start to build relationships with potential buyers; you can gain valuable insights into what the next owner(s) will value most highly
  8. Create a timeline – establish a formal timeline to follow, with milestones and deliverables – prioritized by influencing your primary value drivers – so you can stay on track

Keep in mind that your goals and expectations will likely change over time. You must be able to proactively adapt your strategy and plans according to your fluctuating needs and the dynamic business landscape. Having a structure in place with the ability to flex as needed will help you navigate a successful exit.

Prepare Your Business for Future Transition

Even if exiting your business seems distant, you never know what tomorrow may bring. Taking gradual steps along the way ensures that final preparations – when needed – are less of a heavy lift and ultimately more impactful.

With a solid transition plan on the books, your company will be primed for the best possible outcome. And in the meantime, your business will be optimized and well-positioned to take care of your investors, your employees, and YOU in the most profitable and sustainable way.

If you’re eager to boost your enterprise value and prepare for your ideal exit, but you’re unsure where to begin, look no further. At Impact Brands, our mission is to empower brands to thrive, achieve their goals, and chart the course for a higher multiple and a more favorable exit outcome. Reach out to us today, and let’s work together to achieve your goals!