Building a successful business is a fulfilling journey. Hitting revenue milestones and becoming an industry player is a satisfying career route. But what happens when you’re considering an exit?
The idea of leaving a business is something all founders have to deal with at some point in their careers. This exit is a natural progression, and it doesn’t have to be an overwhelming experience. There is a range of different business exit strategies for founders to consider in most cases.
As business brokers, we often get asked about timing a business exit. It can be challenging to choose when to exit if your personal or financial circumstances change (and you are pushed into making the move). But if your company is prospering well, answers can be more complex. You naturally want to maximise your business value and secure the best outcome – but you want to ensure you continue to spend your time on the things that matter to you.
We regularly help companies in the engineering, manufacturing and professional services sectors increase business value before they are eventually sold. Our approach presents business owners with all the options that make sense to them so that they can get a fair valuation and plan their best exit.
This article discusses the reasons founders choose to leave and factors to consider when exiting. We also examine how to take the following steps when you’ve made a decision. Whether this is a decision you’ve been thinking about for some time or a fleeting thought, we’re here to help you choose your exit timing.
Keep reading to explore when you should consider exiting your business.
What does it mean to exit the business?
Before we jump into the nitty-gritty of selling a business, we’ll quickly run through what exiting a business involves.
A business exit occurs when the owner or founder of the company decides it’s time to leave the business. Ideally, a business exit strategy will be drawn up to ready the company for new ownership or investors when it’s time to go. Though this can be done without help, it’s common for owners to utilise the service of experienced business brokers, such as the Uscita team.
If you want extra guidance through your business exit, help from a professional broker might be the next step for you. In this process, a broker usually offers a free business valuation. From this, they get to create a comprehensive plan for your successful exit strategy. The critical reasons for exiting a business will vary from business to business and owner to owner. Though reasons and scenarios often vary, brokers help navigate these different scenarios to get you the best exit strategy for you.
A business brokerage can also help you meet potential buyers and helpful contacts. When you’ve analysed possible candidates, a broker will be there to help you close the deal. Uscita’s completion rate is 90%, proving our diligence when helping you exit.
When it’s time to say goodbye to your engineering, manufacturing, or B2B business, one of the most important elements is making sure the business looks appealing to potential buyers. Of course, the state of the market will always affect any sales, but there are some steps you can take before your exit to ensure you sell for a profit, like completing a business exit checklist. After all, you’ve been working on this business for years, so it’s best to get a reasonable price with a little extra planning.
From those considering an exit to founders ready to leave now, common themes are seen within exit considerations. It’s best to explore these in full before committing to an exit decision.
Common reasons founders exit businesses
If you’ve been thinking about exiting the business for a while now, it can be helpful to understand the common reasons many business owners choose to withdraw. Reasons for leaving a company can generally be divided into push and pull factors. Pull and push factors rarely exist in isolation from each other. For a personally satisfying departure, you should ideally balance both elements or have an excess of pull factors.
Pull factors can be defined as favourable circumstances that motivate you to exit the company. They are essential as these factors lead you to a new chapter of your life. A common pull factor is reaching a point where you’re happy with your standard of living. This usually occurs when you’re satisfied with your business’ success. Other pull factors include the want to slow down and retire, a desire to travel the world, an interest in new projects, and charity work.
On the other hand, push factors often represent urgent reasons to exit your business. These push reasons are less about personal fulfilment and more of a legitimate push out of the company. Push factors include boredom with your current routine, exhaustion (or work-related burnout), and market uncertainty. They could also involve health issues, or business failure.
While a few push reasons are typical, you may not have the most fulfilling exit if you’re experiencing a higher amount of push factors than pull. Not all scenarios will have an equal balance of elements. A business broker will guide you towards a smooth transition even if you have more push factors. Make sure you honestly discuss all of your concerns with an experienced broker to gain tailored advice for your exit.
Though some business owners know when to exit their business, many feel unsure about leaving. It’s normal to doubt the timing of your exit, and that’s why we’re here to help. Keep reading to find out when the optimal time to leave your business is.
Have you reached your freedom point?
One sign you’re ready to exit is that you’ve reached your freedom point. A freedom point is when you arrive at a stage where working is optional, and you’ve secured enough money to live comfortably for the rest of your life. Of course, this point will look different for different owners.
A freedom point describes when the net proceeds of a business sale would provide enough money for you to retire without having to work again. If you’re unsure what a freedom point looks like for you, we can help you calculate your freedom point and an additional plan to get there.
At this point, many founders are happy with the success and growth of their business. This leads them to a financially secure and fulfilling exit. Many owners plan their exit years in advance and work towards their freedom point. This forward planning allows for a smoother exit when the time arrives.
Founders have the luxury to explore future options when they reach a freedom point. Do you want to continue growing this business or move on to new pursuits? Is it time to spend more time with your family and enjoy some travelling? Take time to ask yourself what you feel is the next step. There’s no “one size fits all” route to follow, so really look inwards and weigh up your personal pros and cons.
Growing businesses get better exits
Another element to consider is whether your business has more room to grow or not. Often, companies that can still expand receive better exits than those starting to plateau. This is especially key to examine if your target market is more niche, as the business won’t be as appealing to potential buyers if there’s no room to grow.
At the end of the day, a business exit is still about making a sale. A founder can rarely walk out without taking action to make the business attractive. A buyer wants to make a return on their investment, so if more growth is on the cards, you’ll likely leave with a higher price.
When you’re leaving your business, you’ll need to take time to realistically examine the company’s numbers. Look at the accounts from a potential investor’s point of view. This helps you gain some perspective on what needs to be done to make your business more attractive. Of course, the state of the current market will also affect the sale, but this will always feature highs and lows.
Calculate what your business is worth to a buyer and then examine how much your business is worth to you. When these two figures are as aligned as possible, it might be time to exit.
When to exit a business that has reached a plateau?
If you’re evaluating your business and you’ve realised that you’re at a plateau, there are a few options to take.
If possible, see if you have the time or energy to grow the business more. If you can pivot or improve your value proposition, this will lead to a better exit sale – but it will take longer to reach this point. Experienced business brokers often advise that owners with a plateau circle back and increase their growth, but this isn’t always doable. A broker will advise you on how much additional development is needed for a satisfying exit.
Alternatively, some business owners may not be able to spend this extra time building the business. If this is the case, you might have to accept a smaller valuation as buyers won’t pay premium prices for a company that isn’t growing.
We often discuss how businesses can grow to a stage where their valuation is higher before selling. An extra pair of eyes can be beneficial when making these tough decisions. Every company will face different factors, leading to a unique exit in all cases.
Remember to take time to reflect on your decision
When discussing a business exit, we always ask clients to reflect on the decision before choosing the final option. Selling a business that you’ve nurtured for years is daunting, so it’s best to take time and navigate the process slowly. We understand that many owners may want to wash their hands off the company quickly. A careful plan will allow you to look back on your time at the company with fond memories.
We also ask clients to reflect on their decision to ensure they leave for positive reasons. Not all business exits will have more pull factors, but we strongly advise that you weigh up the pros and cons of exiting. 75% of founders have regrets one year after they exit. The more pull factors you have, the less likely you are to have regrets after your exit.
We also look at how your exit will affect your team in some cases. The team you’ve grown the business with is essential to your business’s value. When creating an exit strategy, it’s important to consider staff welfare and satisfaction. This is also relevant in negotiations, as you discuss the treatment of staff with any potential buyers. Doing so ensures the best future for your employees.
How do you know when the time is right to leave?
This is the age-old question, but how do you know when it’s time to exit?
Many founders decide when they take time to weigh up the factors that make them consider an exit. Whether they’re keen to spend more time with friends and family or tired of the everyday routine, knowing when it’s time to leave is ultimately a personal decision.
Age, stress, and personal health are common factors that play a part in this decision. But remember that you want a mix of push and pull factors for a satisfying exit in an ideal world.
The next steps when you consider exiting the business
When your decision is made and you’re ready for an exit, there are concrete steps you can take to help you cross through. First, you should draft a business exit strategy that will provide a safe and smooth exit from your business. This plan will be thoroughly detailed, and it often determines the quality of your retirement. It will also determine how much time you have for additional personal projects.
The plan guides you out of the business, but it also helps guide the new owners into the company. A polished transition is key to a quality exit. Using a trusted framework is best to ensure both parties have a clear future plan that keeps the company moving upwards. A framework creates a better future for all employees, and it also makes the business more attractive when being sold.
Depending on your business structure and industry niche, you may have a range of different options when it’s time to exit too. From a clean-cut sale to being IPO ready, we will be able to discuss further opportunities to find the solution for you. Other common exit strategies include mergers/acquisitions, retirement plans, and liquidation.
Most exits aren’t as swift as owners expect, with many needing to stay on through a transition period. Many owners are guided to be flexible when leaving, which can help the business stay steady as they draw back from everyday operations.
Considering a business exit?
At the end of the day, when you’re ready to leave your company, you need to weigh up the pros and cons to ensure you’re going for the right reasons. Though this may take some extra time, being sure about your final decision will create a happier exit. It will benefit your employees and any potential buyers too.
It’s also worth considering whether you can stay for an extra period to help grow the business to get it sale-ready. This final push will increase the value of your company, and you’ll thank yourself afterwards. But, if you don’t have the luxury to grow your business, there are other options to consider.
If you’ve made up your mind on an exit, it may benefit you to consider working with business brokers like Uscita. Our professional team is experienced in curating exit strategies for companies in the engineering, manufacturing, and B2B professional services. Whether you’re ready to go or just exploring your options, you can now investigate the process with our free valuation.
You may also want to explore our Checklist for Selling Your Business ebook, which details everything you need to secure a successful exit. From finance lists to legal and asset reminders, our guide is a must-read for any founders ready to sell.