The first thing a business owner should consider when going into business, is the available exit strategies. Setting up a strategy to exit your business should be planned from the start so that the business can create the maximum value for the owner. The reason you own a business is to create wealth. The following strategies outlined below can help you with this process.
Leverage yourself out of the business
As the owner of the business, you should try to create as many systems and processes as possible. The business should be able to run just effectively even if you are not there to do the day-to-day activities. This means a potential buyer should be able to easily purchase the business and start running the business without too many negative effects resulting from the changeover.
Value your business
Amazingly most business owners know the value of their house and assets, yet they have no real idea of what the business is worth. A lot of owners can fall in the trap of believing the business is worth a lot more than is actually the case. They also have no idea of how to increase the value of the business. This is why every year an independent valuation of the business should be performed. The accountant should be able to identify the strengths and weaknesses of selling the business.
Sell at the right time
There is a common graph of growth for business. A slow part at the start, followed by an incline (growth) & then a flat line (profitability). A purchaser will want to buy the business when it is achieving growth. They want to know they can buy the business and then realise the growth potential. They need to review the business plan and know that there are a lot of opportunities moving forward. Business owners sometimes get attached and hold onto the business for too long. Once the growth phase stops, the owners try to sell – but it’s at this point the value of the business drops.
These are just a few basics ideas for what you should be discussing with your adviser about your potential exit strategy.
At Tradies Accountant, we can provide advice around your exit strategy and give you some real guidance to how this will look. Contact us if you would like further assistance.