Over the past few years, I’ve noticed a tightening in cash being lent to purchasers to buy businesses, even good businesses. This has caused small business owners to explore some interesting new strategies when planning their exit. Let’s look at a few in the Mindshop style of Now, Where, How.
1) First identify where you are NOW
Where are you in the business lifecycle? Is there pressure to exit soon? Or is your exit a long way off? Understanding where you are will help you evaluate which strategies are best. For example, some require a significant period of time to prepare.
2) Stop and identify WHERE you want to be.
Some business owners prioritise the monetary value, while others place more importance on leaving a legacy. The way YOU see a successful exit will determine which strategy you pursue. For example, if you place high importance on legacy, you may not opt for a typical trade sale but want to attract a buyer by offering Vendor Terms.
3) HOW can you get from your current situation to the destination you identified?
Two key exit strategies are acquisitions and employee buyouts.
Having another company acquire yours can be a great way to exit. You get to negotiate your price based on perceived value. You can win big if you convince the buyer you’re worth the risk of looking to acquire you. You can do that by looking for a strategic fit – a company that can expand into a new market or offer a complementary service to customers IF they buy your practice or company. If you have time, you can even be proactive and develop your products or service offering in a way that meshes especially well with theirs. The Competitor Analysis tool can work well here:
Although you may not see as much money in one lump sum through an employee buyout, transferring ownership to employees or a purchaser helps ensure you maintain the company culture, get paid over a longer period of time and keep control of the transaction. There are several other arguments for it, including increased morale, increased productivity and more likelihood that the business will survive and prosper after the sale has been completed due to continuity of key people in the business.
While this was only a glimpse into a few strategies, there are many more. There’s no one-size-fits-all approach to any Merger or Acquisition; each company needs its own strategy.
So what will be your best strategy?
Written by Jeff Miles, The Business Doctor
Source: Business Leaders Strategic Thinking from Mindshop