When a business owner is asked if he or she is thinking of exiting their business, the answer can be ‘Yes’ or ‘No’. The answer, writes Jeff Richardson, should ALWAYS be ‘Yes’.

Let’s start with five reasons you need an Exit Mindset, even if you’re not ready to exit:

  1. Eventually everyone The question isn’t ‘If’ you will exit but ‘How’ and ‘When’. An Exit Mindset means when you do exit, it’s on your terms!
  2. Even if an exit isn’t on the horizon, an Exit Mindset helps you work on the business, rather than in What will make it a more valuable business tomorrow? An Exit Mindset makes your business is a better place for you to be today!
  3. An offer may come to you out of the blue. The more prepared you are, the better you’ll be able to respond to the opportunity. Questions you’ll be ready to answer include: Is it a good offer? Am I personally ready to leave the business? What’s important to me in an exit? With an Exit Mindset you’re always ready to consider an unexpected opportunity.
  4. A good business exit doesn’t come quickly. The best exits are the result of long-term planning and execution. Analyse the value of your business from an Exit Mindset to uncover the real strengths and weaknesses, then set a strategy and execute to maximise value. With an Exit Mindset you enjoy the benefits of maximum value while you’re in the business, and enjoy maximum sale conditions when you exit.
  5. It gives you a ‘True North’. From a management perspective an Exit Mindset gives you a reference point for all your major decisions. With an Exit Mindset you first ask: “How will this action make my business more valuable?”

An exit is not an event, it is a stage in your company’s lifecycle. Business owners often make the mistake of thinking of an exit as an event occurring at a single point in time – “I’m going to exit the business in five years time.” Big Mistake. A good exit involves careful planning and execution, and takes time. The generally accepted ‘average’ timeframe for an exit to conclude is five years.

Just as your business has a start-up phase, a growth phase, and a maturity phase, it also has an exit phase. And this exit phase has four segments:

  • Education. Learn about the options, processes, pitfalls, and opportunities to maximise your Exit. With an Exit Mindset you’ll be learning along the way.
  • Strategic. Identify areas of your business where you can maximise its value for a potential buyer. With an Exit Mindset, you’ll save significant time in this area.
  • Execution. Interviewing and briefing brokers, receiving proposals and strategies, preparing ‘sales’ materials, identifying and engaging possible buyers, meetings, agreements in principal, letters of intent, due diligence, further negotiations, and so on… with an Exit Mindset your execution will be more effective and more efficient.
  • Transition. Even when the deal is done, you’re not done. Typically, the buyer will want the owner to stay with the business for some time after the handover. While not 100% mandatory, rejecting an earn-out phase would probably impact the deal. With an Exit Mindset you’ll have carefully considered what’s important to you in an exit, and will negotiate this stressful period with a clear mind.

You need to know your numbers

Having an Exit Mindset means working on the parts of your business where you can maximise its value. According to research of more than 45,000 SMEs in the USA, the UK, Canada and Australia, there are eight key factors a business owner should focus on to maximise the value of their business:

  1. Financial performance.
  2. Growth potential.
  3. Dependence on one party.
  4. Cash flow.
  5. Recurring revenue.
  6. Differentiation
  7. Customer score.
  8. The owner’s personal impact.

Each factor has a number of influencing elements. As a business owner you need to know how your business is performing against each element so you can focus on the right areas.

So, what does it mean to have an Exit Mindset?

You need just three things:

  • Commitment. Holding the concept of an Exit Mindset close to your heart gives your head the strength to ‘Stay the Path’, acting only in line with this concept.
  • A framework. Making your business ‘better’ is a vague and ill-defined concept. With all good intent, bad decisions can be made if no clear framework for decision making. Set a clear framework based, for example, on the eight key factors research has indicated.
  • Understanding. Understanding your personal feelings helps you exit well when the time is right.

You can find out your business’ score on those eight key factors identified among those 45,000-plus business owners. By completing the same questionnaire, a 27-page report is generated specifically gauging the business performance against the eight factors. Owners that complete the questionnaire can get their own company report and build their framework from there. Access the questionnaire at: www.tinyurl.com/y584l5y5

Jeff Richardson works with business owners as an Exit Mindset Advisor for 12 Months On.