Monday, July 6, 2015

Exiting Your Small Business

When you're an entrepreneur, any decision to sell, exit or get out of your business will be a gut-wrenching one. You've invested considerable time, money and probably made many sacrifices to get the business up and running.

But sometimes circumstances change - and you realise that you have to find a way to adapt ..... So if you're faced with the decision of whether or not to sell and exit your small business, then here's some things you should consider ....

1. Clarify why you want to get out of your business

There can be various reasons why you might be wanting to exit your business. For example -
  • Business compliance requirements have become too difficult or frustrating for you
  • You no longer gain satisfaction or enjoyment from running the business - and the passion and motivation you experienced in starting the business is no longer giving you the juice you need
  • Personal circumstances are creating stress and distractions for you, which could range from personal illness to family conflicts making it difficult to focus on the business
  • The business just isn't generating the profits that you need or envisaged
  • You've been made an enticing offer for the business - possibly even by a competitor, or someone who sees potential synergies with their business

2. Consider all your change options, not just leaving the business

Once you're clear about which of the above reasons is the main cause for you to be thinking about exiting, then ensure you've also considered other options that might conceivably help change the dynamics of the situation for the better. Maybe there's other things you could try, before getting out

For example -
  • Consider bringing in a partner, or an investor, who may have skills that complement yours
  • Outsource the administration of the compliance requirements
  • Delegate the parts of the business operations that you find frustrating - ask yourself if you have staff, whether you are utilising them to their full capabilities
  • Take a temporary break from the business, to see if you come back feeling more refreshed
  • Develop a succession plan and start grooming one of your people to take over running of the business, so you gradually are relieved of responsibilities in the business
  • If there are profitability issues, have you consulted a marketing or finance expert for advice? Maybe there are opportunities to reduce costs that you are not recognising. Or maybe there are different methods you could be using to more effectively promote the business to a new demographic?

3. Arriving at a valuation for your small business

Having given the matter careful thought and analysis, if you remain convinced that the best course of action for you is to sell and get out, then you will need to think about how to value the business.

A great Australian government resource site is Selling & Closing Your Business
There are some great tips on how to value your business - for example, remember to include both tangible and intangible assets in any valuation.  Tangible assets include equipment, tools, materials and property - in other words, anything that can be touched.

Intangible assets refer to intellectual property, the prominence of your brand within your industry and business goodwill.  This can be even more subjective to value but can encompass things like customer loyalty and retention, customer contact lists, brand recognition, the systems and procedures your business has developed, your employees and their specialist skills.

The value of your business can be calculated by various methods - and these can produce quite different results. In some industries, the accepted valuation method is based upon a multiple of annual profit plus physical assets. So for example, if your average annual profit over the past 3 years was $50,000 then it might be times a multiple of 3 - plus the replacement or depreciated cost of your physical assets.

The government site mentioned earlier describes a different method of calculating business value, referred to as ROI and gives a simple example of how ROI can be calculated.

4. Consider a business broker to help with your exit

If you've decided you just want to get the hell out of your business, then an experienced business broker can not only help in the planning and preparation of a measured exit strategy, but also potentially in connecting you with an interested buyer.

Denise Hall is the founder and Director of The Entrepreneurial Mother. She has started up and successfully exited three businesses herself and is well qualified as a business broker. She is based in Melbourne, but has advised many business owners around Australia in how to prepare their small business so that it can potentially sell at the best possible price.

To do this, she helps the business owner better understand what buyers look for in a business and to recognise "all of the boxes that need to be ticked". I asked Denise to share s few comments -

"If you are going to be dealing with a business broker, make sure they are licensed with the relevant State body. The Australian Institute of Business Brokers has links to the various State licensing authorities. When exiting your business, you should seek some professional advice - however even an accountant or solicitor have limitations on the scope of the guidance they can offer around the valuation and sale of a business.

A qualified business broker can help in many ways. They will prepare you for the due-diligence that a buyer conducts. They know that a buyer or investor besides looking at the current profitability of the business, evaluates the extent to which it can run independently of the seller, as well as examining the scale-ability of the business. In other words, it's capacity to actually handle growth and maintain profitability with any increase in the volume of sales generated"

Here's a short video clip in which she offers some quick tips around exiting .....

In conclusion, the decision to exit your business won't be an easy one.

Even more difficult when there are pressures that are driving the need for you to exit. But if you're in a situation where the figures on the balance sheet at the end of the day are looking gloomy to you, or alternatively you've just lost the fire within, and you really have exhausted all of your options to improve the situation - then sometimes you've just got to grit your teeth and become surgical in determining what is the best way to positively move forward.

It's pointless remaining in a situation that for whatever reason, has become toxic for you. And never for one moment beat yourself up by thinking negatively that you're a "quitter'. Hey, you'll learn from the experience and you'll never have the regret of wondering "what might have been?".

The act of courage is sometimes knowing when it's simply time to walk away and move on - and be a wiser and happier person for it. And the exit then eventually becomes an entry point for something that will be new and even more rewarding for you.

Brian Carroll
About the author
Brian Carroll is the founder of Performance Development, a corporate training business in Melbourne, Australia.  

He is an experienced management coach and a qualified psychologist,  with a passion for helping people achieve their goals in life and business.
You can find out more about Brian at his Google + profile