The Australian Small Business Blog

Tuesday, August 01, 2006

Make Sure there is an Exit Door in Your Business

Although it sounds crazy, the right time to consider how you will exit your business is when you start it. But unfortunately, most business owners don’t consider an Exit Strategy until they want to leave.

Why have an exit strategy? Let’s consider what happens to most businesses.

Consider an owner called Joe. Joe has been running the business many years. He knows all the customers, and the customers like doing business there because they like Joe. He is a great bloke. Joe works hard and has had some good years, but is getting tired. Unfortunately, the business is way too dependent on Joe. It might run well, but only when he is there. In fact if Joe is away more than a week, things starts to slide. Joe’s number 2 does a great job, but she just isn’t Joe.

Joe is starting to get to retirement age, and would like to sell the business. Joe originally hoped his son or daughter would want to take over the business. But they have seen how long and hard he works, and don’t want that for themselves. He talks to a business broker and lists the business, but gets little interest. The one offer he gets is a joke. Even his number 2 is not interested in buying the business, and is only interested in making sure she gets her entitlements.

At this point Joe realises, he has nothing to sell. He doesn’t own a business, he owns a job. What should he have done?

When starting his business, or even a long time before he wanted to exit it, he should have created an Exit Strategy. Whether you want to sell the business, franchise it and then sell the franchise it, offer to licence what you do or any one of numerous other business strategies, the first step is to realise your business is not worth anything unless you can make it less dependent on you. That it can operate without you.

So how do you do that? By creating an operating system for your business. By putting in place procedures, processes, checklists, templates etc for every part of your business. When you do this, you can start to bring in others to do the jobs you currently do. And when you create a business reporting system, you can even run the business when you are not there. This is called a business management system.

When you have a business system, a potential buyer can look at the system, understand how your business works, and know that if they follow the system, they will be able to achieve the same results you do. So in Joe’s business, they don’t just come in to visit Joe, they come in because or the service that Joe or anyone of his staff provides. (Today, if Joe leaves, so will his customers.) With a system in place, the customers don’t mind who, in fact, is minding the store.

When a potential buyer can see that they can achieve the same results as Joe, by just following his system, they will be happy to pay several times his annual profit for his business. Its never too early to plan you Exit Strategy, but if you leave it too long, it may well be too late.

Dr Greg Chapman is the Director of Empower Business Solutions and is a Business Coach and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems.

The Australian Small Business Blog

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