Your Exit Doesn't Have To Be Tomorrow
Plan your growth from a valuation exercise, even if you're 5-10 years from an exit
The idea of an exit - particularly for small businesses and solopreneurs - is often daunting. Primarily because these business owners have never been told they can actually exit their businesses in the first place.
Exits and exiting are usually positioned for tech startups and VC-backed sweethearts, where the payday is lauded to be multiple 7-figures and beyond. They don’t even seem like a viable strategy for small businesses.
Quite the opposite is true.
In fact, there are many markets out there where businesses of all sizes can list their business for sale, and find a buyer. Heck, I’ve bought businesses for $500 on one of these marketplaces, and considered making an offer on one that was being sold for $1.6M (a solopreneur personal brand, at that).
Every business has value of some degree, and can be sold to the right buyer for the right price, if you’ve done your homework and planned your exit intentionally and with purpose.
When I work with my clients, they are typically 3-10 years out from an exit and are just starting to think about what that could look like. They are not urgently trying to offload their business, but they know they are getting to a point where they aren’t sure they are the right person to take the business through to its next stage of life.
So we very intentionally envision what an exit might look like for them.
Sometimes that means it’s a full entity sale. Sometimes that means it’s an asset sale (where you just sell the valuable pieces of a business). Sometimes it’s an operational exit, where the owner retains ownership but hands off the operations of the business to a team.
There are several other options as well, but no matter which exit is right for you (even if it’s none at all), we will use a valuation approach to determine your roadmap and growth strategy.
Valuation is the process of assessing what a business is worth based on an established approach. (For most of my clients, we use a valuation technique called Seller’s Discretionary Earnings, which establishes valuation based on the earnings the current owner takes from the business).
Part of the valuation process is numbers-based and calculates pure monetary value based on financial statements and a few other measures. But the other part of the valuation process is the risk adjustment, which is where two similar businesses might vary greatly in their valuation.
During risk adjustment, we consider all of the non-numerical attributes of the business that are tied to business value. For example, diversification of revenue channels, audience size, growth patterns, etc.
This exercise is meant to provide additional context to the buyer to impact the valuation. Based on the buyer’s perception of these measures, this may impact the valuation a lot or just a little.
But what I find most useful from this exercise - and why I do it early in the exit planning process - is because the risk adjustment allows us to model how certain changes can impact the business valuation.
And, thus, provides us with a strategy for where we want to focus our efforts between now and the time the owner wants to exit, so we can dedicate the maximum amount of available resources to the most impactful strategies.
Often, growth strategies take a while to really ramp up and show their results, so having a plan over a few years is really helpful to keeping your growth work on track.
Remember that growth takes time. Even if you are years from an exit, planning your growth using valuation helps us ensure our efforts are being directed in the most impactful ways and that, down the road, you end up with a valuable business that has grown in worth and can provide you with a long-term payout.