Building an Exit Strategy

All good things must come to an end, right? Sometimes when we think about leaving or going away, we think of it as a bad thing, but, in the world of selling businesses, leaving can mean leaving a company and heading straight for the bank. Leaving can mean you finally did what you set out to do - have a business that's successful enough to gain wealth.

It’s a good thing. In fact, it’s a GREAT thing, but this great thing can easily turn sour if done incorrectly.

On today’s episode of Deal Closers - A Tech & Internet M&A Discussion, we’re talking about exit strategies and Jason and Ron from WebsiteClosers.com share with us which one is the best for you, depending on what you wish to do after selling your business.

[01:17] What is an exit strategy?

• Sometimes, the exit strategy is more personal in nature - they’re looking at their family and where they need to be in the future;
• Sometimes that exit strategy might be partnering with another group to help them grow;
• Another exit strategy could be to go public and take the business out into the public markets.

[02:02] What is important to keep in mind, if you’re the seller:

• The larger the deal gets, the more the buyers are going to want the seller to stay on board - be prepared to spend a year with the buyer;
• Some companies have more than one owner – more owners means more players and more people needed to get on the same page about what the exit plan will be;
• If you’re in the SBA world, you’re not allowed to roll equity – you have to sell 100% of your company; if you’re outside the SBA world and if you’re going to continue with the company and you’re going to help them mitigate risk by rolling equity and staying involved, then you’re likely going to have a higher multiple in your business;
• When you’re planning your exit, you have to decide for you, personally, what you want – so it’s not all just about the business decision or the economics of it, it’s also about you, personally;
• When you’re selling, you have to think that you sign a non-compete agreement, so you really have to think about what you want to do next because you’re going to have to do something different.

 [09:20] What happens when you stay involved in the company you want to sell:

• Many entrepreneurs are reluctant of agreeing to stay involved after closing because they are concerned that by doing so, they now have a boss, they have somebody that’s going to be looking over their shoulder; what really happens is that everyone sits down together on a whiteboard and start working out what are the next 90 days going to look like and what’s the next year going to look like;
• You can do everything you were doing before, except for the things you don’t like doing - you're wearing a lot of hats until somebody comes in and partners with you and takes some of those hats from you.

[11:52] How brokers view deals and exit strategies: depending on the entrepreneur:

• When they come to us, our job as a broker, first of all, is to see who they are and what they are doing;
• We have to look at their financials, we have to determine whether their tax returns are easily decipherable and whether during due diligence, this company is going to pass muster. Basically, we work with them to get them ready;
• Sometimes we see companies that are not ready, so we want to be patient with them and look at the long-term strategy. We partner up with these businesses to help them maximize.

[22:17] How you can prepare for selling your company if you don’t want to go along with it:

• The best thing in the world for a buyer to see when they come into a deal is that there’s a CEO already in place, and they’re buying the company with that person behind the helm. So, if you’re not looking to go along with the company, consider hiring a president or a CEO to take your place and run the company;
• One of the biggest fears of buyers coming in is they feel like the ball is going to get dropped when it gets transitioned to them because they’re not as knowledgeable and experienced as the ownership is – so bringing in somebody to do that work is a very strong move. 

Resources:

• Websiteclosers.com