Your Exit Strategy - The Importance of an Exit Strategy in YourBusiness Buying Or Selling Plan

It is necessary for every business owner to have a well planned exit strategy ready in view of an emergency exit from the business.

Some would say, planning an exit strategy is just as important as starting the business. A well planned exit will maximize the existing value of your business when you go to sell. It will also considerably reduce the time needed in the preparation required to sell the business.

"You cannot overestimate the need to plan and prepare. In most of the mistakes I have made, there has been this common theme of inadequate planning beforehand. You really cannot over-prepare in business!" Chris Corrigan

Even though everything may be running fine in the business, you never know when you need to sell your business and move on.

The following are situations when an exit strategy for business would be helpful:

1) A sudden change in market conditions

2) A disability or critical illness - loved ones or yours

3) Loss of customers, suppliers or key employees running the business

4) An offer too good to refuse

5) Your death

6) Or simply ready for retirement

The time required to sell your business in such eventualities will be directly related to the complex nature of your business. It also depends on the market conditions and your circumstances to exit the business.

An exit strategy for business is a work in process. A well-planned exit keeps the control in your hands and you are able to maximize the benefits from the sale of your business.

The various advantages that a planned exit strategy gives you include:


It serves as a road map to others and it can be followed with or without you (in event of death or disability) or a well earned extended holiday - far more enjoyable!
A plan will give you an idea about the benefits in case of an exit
It will give you peace of mind, as you have planned and are ready to tackle the unknown circumstances.

The exit plan should be well documented and reviewed every year. It does not need to be the size of war and peace keep the plan short and precise. You should discuss your exit plan with your loved ones, professional advisors and key confidants. A trusted family member or friend should have knowledge of the location of the exit plan.

Remember share the exit plan with a potential buyer. Business buyers are reassured seeing a well planed business, and it will also help them with their future planning and be beneficial in unexpected circumstances.

For more information regarding exit strategies in business, a recommended resource for expert, user-friendly, step by step Business Exit Strategy Information and Small Business Tools, go to http://www.thegbrgroup.com.

The authors of the popular eBooks 'How To Buy A Business' and 'How to Sell Your Own Business' are experts in their fields of Business Buying, Selling and Business Valuation. With decades of experience buying and selling businesses of all sizes, they have seen many mistakes made by both buyers and owners. They have combined all their years of knowledge to deliver a low cost alternative for DIY buyers and sellers, stepping through the process thoroughly in order to avoid common mistakes and significant expense.

How to Value a Business - Have You Wondered Why The Asking Price And The Actual Purchase Price Of A Business Can Be So Different?

Ever wondered how to value a business accurately?

The other day I came across a social media site and noticed an old post.

Someone was asking a question about how to value a business.

Ten people were good enough to answer. I wasn’t surprised when all 10 replied with completely different methods on how to value a business.  You have to assume that people taking the time to answer the question were reasonably confident that they knew the correct answer. It made me wonder where they actually got the information from and how much confusion this subject creates with almost everyone including accountants and business brokers.

So, how do you go about establishing the correct asking price of a business?

This is the method a Business Broker will use to determine the asking price of a business:

The method below is used by business brokers to determine an asking price for a small business; it is based on the adjusted net profit using the most recent profit and loss statements. The business broker will look at all the business expenses to see what they can add back to profit. This is referred to as add backs or recasting.
The adjustment is made by adding back to the net profit all the non-essential or discretionary expenses not necessary to run the business to show a more accurate net cash flow for the owner.

The business may also have unaccountable business expenses. A good example may be the rental expenses, if the business owner also owns the freehold and is only selling the leasehold you would need to ensure that the rental expenses are correct and adjust the profit if necessary, in this case it would be adjusted down.

Once this number is determined, the next step a business broker will take is to multiply the adjusted net profit, usually by 2.5 times, and they have an answer.

Let me give you an example of business broker method.

Business A: Established 12 years, trades 9-5 Mon –Fri with consistent sales, strong industry growth, selection of quality suppliers, and abundant customers etc.

Business B: Established 2 years, operates 7 days a week, sales are inconsistent, cut throat industry with aggressive competition, and it only has one customer.

Both businesses A and B show $100,000 adjusted profit after the owner operator wage is taken out. The business broker will then use the same multiple on both businesses i.e. 2.5 x $100,000 = $250,000. This will include stock, the written down value of the plant and equipment and the goodwill.

As you can plainly see this method doesn’t make a great deal of sense.

As a business buyer or business seller it’s important for you to never assume that the asking price of the business is anywhere close to the correct value even when it’s set by so called professionals.

You can be talking hundreds of thousands of dollars either way. Scary!

Thankfully, there is a better way to value a business.

Find out why Accountants are popping their cardigan buttons!

Checkout this business appraisal tool example and let me know what you think: Small Business Valuation Method Example

Happy Business Valuing!