When Should I Start Thinking About an Exit Strategy

Oct 15, 2022

Walt: Hi out there, this is Walt and Darrick, we are business coaches and strategists with Denver Business Coach, and we’ve been responding to some questions that have been presented to us by some of our clients over the last year, and presenting them in a form that allows you to get a sense of what one on one coaching would be like with Denver Business Coach.

Darrick: We might actually be able to do this from the same room at some point Walt?

Walt: That would be nice.

Darrick: Would be nice.

Walt: Yeah. So this it’s fun and it keeps us actively engaged with not only our clients, but also the business community out there that we’re trying to work with. And if this is the kind of thing that appeals to you, in terms of how to get professional guidance, we’d love the chance to work with you. That’s what we’re here for.

Walt: So today we’re going to field a question from a wholesale food distributor in Denver who asks, “I’m enjoying what I’ve been doing in my business for a number of years, but I know I should start thinking about an exit strategy before I’m really ready to move on. Though this is not going to be happening any time soon, It’s still something I know I should be thinking about. Do you have ideas to help me in this area?”

Darrick: Absolutely, we get this question a lot. And usually, the question comes when somebody have been thinking about it for a while already, they’re ready to get out of it. So as soon as someone comes to us and says, “oh, I’m ready to sell”. And we say to them, well, do you have three years of operational plans? And three years of past financials? And three years of this. And they’re like, “oh, no, I don’t have that”.

Darrick: It’s like, oh, you wish you could go back in time sometimes, but you just can’t. So I think I give kudos to this entrepreneur because they’re thinking ahead about it, before they’re ready to sell or before they’re even moving down that path. So that’s a great, great step to take right there.

Walt: Unfortunately, a lot of businesses over the last year and 2020 with COVID has suffered immensely, and has forced people to think about this in a more urgent situation. Maybe, in addition, people who were on the cusp of being ready to sell have had to postpone that plan to get the most out of the transition.

Walt: And so we are fielding a number of questions in this area, and I think we’re very prepared to help provide some guidance, and have some great tools to help them make sure they get the most out of it when it’s time. And one of the keys, as you said, thinking about it early, is something we heavily recommend.

Walt: As you are making decisions today, it’s best to start thinking about those critical decisions with an eye on the future, and how it would affect the business value and the transition of your business. thinking about when to start your exit strategy is a part of this. We can come up with lots of examples, but Darrick, what have you seen, and what kinds of advice have you given in this situation? When should they start thinking about an exit strategy?

Darrick: Yeah, I think it’s exactly that some people feel like “why should I focus on selling my business right now? I have no intention of doing that. I’m enjoying what I’m doing and we’re rolling along. We’re fine”. And that’s not the message. The message really is just do all of the things that make your business operate really, really well and you are, in fact, setting yourself up for sale.

Darrick: So if you’re building the foundation of your financial information, then you’re making sure that you’re having that audited periodically, and you’re doing all of the operational processes that you need and you’re documenting that, you’re putting great personal strategies in place and you’re documenting that. All those things build a great case for a solid sale at some point.

Darrick: But they’re also just the right way to run your business in general. And we’ll optimize what you do on a daily basis and make you more successful just because you’ve got all your ducks in a row. So you don’t necessarily have to be thinking, “Oh, I’m going to sell in a certain number of years” to put a lot of these great practices in place now.

Walt: Excellent point, one of the things you mentioned is really everybody’s favorite thing to do, and that’s to document procedures. Right?

Darrick: Right.

Walt: That’s why you started the business. But even if you’re a solopreneur, you might say, “Why should I document procedures in my business?”. Well, a couple of things come to mind. One is, you might add people at some point, who you will need to train. And it’s best to have a toolset in place for that.

Walt: But also, if you never hire another person and it’s time to sell your business, and when you should start thinking about your exit strategy, the potential acquirers are going to look for, if you’re out of the business, what’s there to rely on? What’s there for me to understand your sales process, your operational procedures and so forth that make your business unique?

Walt: One of the things that we are certified in, is actually called a value builder system. The value builder systems helps use understand when you should start thinking about an exit strategy. And it’s a methodology and it’s a tool, used by business brokers all over the country and really all over the world, to help small businesses build value into their business.

Walt: And it’s a proven statistically that those who improve their scores in certain areas under the value builder system, can dramatically increase the value of their business when it comes time to sell. And that’s a step we take with you early on with this goal in mind, to assess your business and then help you optimize its value over time. And there are several tools within that to help us achieve that. You want to talk about one or two of those Darrick?.

Darrick: Yeah, I think it’s a great system, It makes it very, very clear about the steps you need to take and the exercises involved to achieve that. So I agree. I think that the value builder process is great. And I mean, one of the examples of clients that we’ve had that have gone through that process, even without thinking that they’re going to sell their company at a certain point, is that we had a client that just got approached out of nowhere by somebody that said, “Hey, we are looking to expand, we like what you do, we’ve watched you for a while. We’re interested in purchasing”.

Darrick: This just came out of the blue. But the beauty is that, because that client had gone through this process and had maintained all those things, they were prepared for it. They were able to go and look at the fundamentals and talk to a business broker and really present a very solid case for the value that they asked for their business. And they ended up having a good exit. It was earlier than they expected, but it allowed them to go on and do something different with their lives, which was great. So it just proves that thinking ahead a little bit can ultimately really pay dividends.

Walt: Yeah, that’s an unusual situation, but it really illustrates the value of taking these recommendations to heart. And as I mentioned, the value builder system, is one that’s used all over the country and it’s used by business brokers. So no matter if you are selecting business brokers at some point now, or five years from now, or 10 years from now, the more you can build value starting today, the better.

Walt: And when that time is right, when you think you should start on your exit strategy, one of the strengths that Denver Business Coach brings to the table is, we’re not business brokers, but we do have relationships with resources and the business broker profession, both in Colorado and beyond, that may be able to be of value to you when that time is right for you. And you start by just having a no-obligation discussion of what it’s like to try to sell your business. But the process starts with coaching, and that’s something we’re certainly able to help you with.

Darrick: Absolutely. So this is kind of what it’s like for one on one coaching, these are the kind of answers and questions we have, kind of conversations that we have. So if you feel like this is something that would be beneficial for you or for your business, please reach out to us.

Darrick: The information is up on the screen. And if you have a question that you want us to address in this forum, we are happy to do it. Just send it in, to us as well. And we’ll see you next time on Coach’s Corner.

Walt: We look forward to working with you. Bye