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Hasta la vista: when you should exit your business
16 May 2012 3:14 PM - SWC
Knowing the right time to exit your business is more important than the decision to start one up.
When you start a business it’s often with an idea, a limited amount of capital, and a load of enthusiasm. By the time the business has grown and developed, it is likely to be worth far more than at the start. But, a lot of business owners get the exit decision wrong and pay the price for it.
While you might hand your business onto your kids, most businesses either fail, or are sold. Timing your exit is about understanding:
- The best time to realise that value
- Whether your business has outgrown you
- Whether the business model is changing (for the worse)
- Whether you have outgrown the business
A strong business with good prospects is always easier to sell and a buyer is likely to pay a premium for their expectation of the future value to be created. Smart owners monitor not only the value of their business but also the expectations for the future. You need to have a good sense of where you are on the value curve.
Some businesses outgrow their owners. Some people are great at running micro businesses, some are great at running small businesses and some are great at mid size businesses. Success at one level is not an automatic guarantee of success at the next level. The skills sets required are different at each level. Normally, the smaller the business the more important it is for you to be skilled at what the business does. The larger the business the more important it is that you are a good manager – strong in finance, strategy and business planning. If your business is outgrowing you, then it might be time to exit before the next stage of growth puts pressure on both you and the business.
Don’t believe that your business model will be forever constant. Business models change. The owners can drive this change or it might be driven by changes in the industry or evolution. For most business owners, the danger is that their business model is changing and they don’t realise it. If you are in an industry where the business model is changing you need a good radar system to detect this, and then be able to assess whether it is for the better or worse. If your model is changing you need to be at the front end of the change or to exit the industry before the change takes over. You can get squashed in the middle.
And, in the same way that your business can outgrow you, you may be outgrowing it. This does not apply to everyone but some business owners lose their enthusiasm once the business has grown to a certain stage. Where they relished the challenge of growing the business they are bored with the sameness of a mature model.
Doing a periodic health check on your business strategy and forward direction might tell you when your time is up. Talk to us today about doing a health check and plotting your exit strategy.