What is 'Run it Ready to Exit'?
Run it Ready to Exit!
Planning ahead doesn’t mean ‘checking out’!
Q: How do you get the best value out of your business when you’re ready to exit?
Q: How do you get the best value out of your business while you’re still running it?
A: Good News! We can use the same work to meet both outcomes!
As entrepreneurs & business owners, it’s easy to get wrapped up in the doing. This puts both the day-to-day operational performance and our long term value generation (exit value) out of focus.
The ‘doing’ is important. In fact, it’s critical, it’s what our customers pay for. What is getting done to serve customers pays for salaries, rent, utilities, raw materials and everything else.
Set aside the day-to-day operation and there are two values that may seem more abstract. You know they’re important but the operations side of things always seems to pull you away.
- Value During Ownership
- Value on Exit
What is ‘Run it Ready to Exit’?
I like to keep business simple. ‘Run it Ready to Exit’ means exactly what it sounds like. Run your business like you’re going to enter negotiations with a buyer this afternoon.
It means running an efficient/effective organization that is ready to transfer to new ownership financially, physically and operationally.
By keeping your business ready to exit you realize the benefits of an efficient operation and provide a potential buyer with a well defined vision of the future.
Your ability to demonstrate that future to your buyer will impact the value placed on your business.
Value During Ownership
What owning a business means to an entrepreneur will vary as much as the owners themselves. One thing that applies to all of us is the financial reward that you value.
Whether you’re using the proceeds of your business to fund your dream vacation six months a year, working hard to get by day-to-day, trying to work that four hour work week or living in a tiny house off the grid and giving the remainder to charity, you can only do what your business will support.
Watching costs, continuously improving operational efficiency, and building a streamlined business is worth the effort. Your strong, efficient business will fuel the impact you want to have in your life and community.
Value on Exit
How early you should start considering your exit strategy is a topic for a different article. It’s worth taking a few minutes to consider the impact of your business operations on your exit value.
Standard business valuation methods will get you into range and will provide some rationale to an offer or counteroffer. It’s important to understand that they are the starting point, not the final word. Whether or not your business is on the high end of that range or even pushing the upside higher is going to depend on one thing; your buyer’s perception of the future value of the business.
Our perception of future value is determined by how well we see ourselves moving the business forward as buyers.
- Do we understand the customers and their values?
- Can we implement the business plans already in place?
- Will our own vision translate to the business in a meaningful way?
- How does the business operate?
- What are the revenue streams?
- What are the untapped markets?
You get the idea. The more comfortable your buyer is with how much effort will be required to transfer the business to new ownership is key to how effective they will be and how quickly they can get a return on their investment.
Efficient, organized, well-run, process-based businesses are easier to transfer than the alternative.
The Bottom Line
The intentional use of sound business practices results in a strong business that has enhanced operational value as well as higher exit value.
The operations side of your business may not feel as exciting as product development or as immediately gratifying as a shiny, new marketing campaign; however, putting time into a streamlined business will allow you to get the most value out of that new product design and marketing effort both now as the owner and in the future as you exit.
