According to Forbes, 80% of business owners are unable to sell when they would like to. That doesn’t mean they never sell their companies. However, individuals who are ready to retire or step away for a new venture don’t ever want to feel stuck in limbo. Unfortunately, that’s exactly what happens with many entrepreneurs.
The reality is that too many owners wait until the last minute to think about their exit. The result? They are either unable to sell or they leave value on the table. In some cases, they’ve unintentionally created too many risks for the buyer or simply aren’t ready to walk away.
If you want to get the most out of your business when it’s time to sell it off, the best approach is to start early. This means enlisting the support of an exit planner early and laying out a five-year exit roadmap. Here’s what each year of that timeline should focus on:
5 Years Out: Define Your Vision and Build the Foundation
Five years out is the ideal starting point for building your exit planning journey. At this stage, you ask questions such as:
- What does your life look like after you exit?
- Will you retire, start something new, or stay on in an advisory role?
Your business value should serve your personal vision. Once you’ve answered these questions, choose your exit route, such as an external sale or internal succession. Next, start laying the groundwork for a takeover several years down the road. Strengthen your finances and leadership structure to reduce the risk of surprises later.
4 Years Out: Strengthen Value Drivers
With your foundation set, this year is all about making your business more attractive to potential buyers. Your key focus areas should be:
- Promoting financial transparency with clean, compliant books
- Documenting your processes and removing owner dependency so the business can go on without you
- Reducing reliance on a handful of core clients who may be loyal to you, not the company
- Building a leadership team capable of driving results without you
A strong business four years out positions you to build value before it’s time to connect with buyers.
3 Years Out: Refine Your Strategy and Build a Narrative
Now it’s time to polish your story and strengthen what makes your company unique. Priorities this year include the following:
- Identifying what’s next for the business under new ownership
- Defining opportunities for expansion
- Conducting an informal or third-party valuation
- Tightening up governance processes, such as contracts and IP
- Streamlining costs to make the business more profitable overall
By the end of this year, your business should be performing at its best. A strong valuation and solid governance structure will make it appealing to buyers or investors.
2 Years Out: Assemble Your Deal Team and Finalize Your Strategy
Now you’re entering the final stretch. It’s time to prepare for the transition itself. Focus on:
- Building your advisory team, which should include a CPA/tax advisor, valuation expert, attorney, and M&A broker
- Structuring the deal and identifying your essential requirements
- Identifying issues now rather than waiting for a real due diligence period, so you can actually make it to the closing table when the time comes
You want to prepare for a smooth handoff when you find a suitor.
1 Year Out: Execute the Exit
The final year is all about execution. Ensure that all the value you’ve built translates into desirable outcomes. Here’s what you need to manage:
- Confirming your financial and legal systems are deal-ready
- Executing your marketing or successor handoff plan
- Preparing personally, emotionally, and financially
- Communicating clearly with your staff
- Supporting a smooth transition to preserve your legacy and continuity
Starting early gives you more options for making an exit and can result in a higher valuation. However, planning that far ahead can be challenging. That’s why it’s important to bring in an experienced third-party team.
Start Planning With Zabel & Co.
Zabel & Co. helps business owners today build companies that will be highly sellable tomorrow. No matter how many years you have until you plan to exit, now is the time to get your strategy in place. Ready to begin? Contact us to learn more.