Exit Plan – 9 Ways to Build Value

Original article shared by Partner, David Kirkup

Exit Planning is something I recommend to all company owners. There are nearly 20 million companies in the US with sales less than $100 million. Over 70% of these are likely to be ready for an ownership transition over the next 10 to 15 years – as the Boomer generation retires. But only 20% of listed businesses actually sell. An Exit Plan can help in several areas: it not only helps an owner decide when and how they will make an exit, it also helps them start to build the value of their business over a set time period. Since all business valuation techniques ultimately center around a multiple of profitability, focus on revenue, profits and cash flow will all help increase business value.

An BNET article by John Warrilow suggests 9 Ways to Make your Business more valuable in 2011. In particular, I like:

1. Predictable and Increasing Profits: Increase both profits and the multiple at which your value is created by developing steadily increasing profit margins. This demonstrates to potential acquirors that your business is growth oriented and well managed. Focus on planning, cost control and process improvements will all help to develop continual improvements in profitability. Evaluate vendors and purchasing strategies continually to find extra savings.

2. Diversify your customers: A business that relies on a larger number of customers is considerably more valuable than one that is hostage to one or two large customers. While having Wal-Mart as a customer might seem like a winner, it could spell disaster if that is your only customer.

3. Upgrade and update your website: Marketing collateral and web presence can age rapidly. Your web presence is not only a customer guide, it’s also a way potential investors can find you and make evaluations. They will Google you and you should already know what they will find.

4. Develop a predictable, recurring revenue stream: Annuity income, such as subscription or long-term contracts, is viewed more favorably than large one-off contracts. The potential buyer will feel more comfortable with a business that will continue to book revenue, rather than one that may have a few key contracts – maybe even tied to the owner’s personal contacts.

Exit Planning should be a continuous process and there are numerous ways you can improve the valuation of your company. A good financial review is a first step to understanding where you should focus.

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