Now might not be the best time to execute your exit strategy, but it is the perfect time to define it. From day one of your business, you should be thinking about how your exit strategy will look. If planning it seems daunting, you’re not alone. But it’s worth the time and thought, especially during this uncertain time.
The pandemic has shaken the very core of our economy. Whether you follow Nouriel Roubini (who believes that a depression greater than that of the 1930s will hit in the middle of the current decade) or George Gammon (who believes we’ve been in a depression since 2008), the facts remain the same: Economic uncertainty is real and now. But, being prepared will give you peace of mind.
In 2008, I was working on a merger with a large European company. It was moving forward seamlessly, until it just wasn’t. The day after Congress approved the $700B bank bailout, affectionately referred to as TARP (Troubled Asset Relief Program), the European company backed out of the deal. These things happen, and I wish I had the wherewithal then that I have now. It’s never too early to plan, track, listen and reserve:
- Plan your exit.
- Track the economic cues, such as gross domestic product (GDP), unemployment rates, interest rates and the stock market.
- Listen to your advisors and mentors.
- Establish a reserve that will tide you through six to nine months of expenses.
Before you can define a plan, you need to consider the current state of your business. Here’s how.
Define your story. Your story that existed on February 1, 2020, may not be the story you tell on February 1, 2021. That’s OK! Stop and evaluate your business. Craft a new story if you need to – and believe it, own it and win.
Know your numbers and key business drivers. How are you trending? What was normal six months ago versus what is happening today? Then ask yourself:
- How resilient is your business?
- Does your current value proposition resonant clearly with your customers? When was the last time you checked in on your customers?
- Where are you burning cash? Have you set aside reserves to get through the toughest times? Have you secured an adequate line of credit? Are you in over your head? The time to find a lender and get a line of credit is always before you need it. Many lenders are being cautious and not lending as they did pre-pandemic.
Evaluate your culture. Communicate with your teams regularly. Be open and receptive to cues and nuances that something is not as healthy as you thought. Engage with a Culture Talk Partner to help measure your organizational culture. Awareness is key.
Hire an experienced Advisor to guide you through the process. A Certified M&A Advisor will help you define and understand how to get from today to your eventual exit.
You have spent years building your business, but have you thought about how you want to exit? Start defining it by asking yourself these questions.
When was the last time you had a business valuation prepared? If it’s been a while, you should consider having it updated. Then think about these questions:
- How close are you to your ideal exit valuation? What do you need to do to get there?
- Work with your advisor to put together your roadmap, including a five-year forecast and milestones and metrics to hit that forecast.
- How have the current economic conditions affected your business? If you’re on an upward trajectory due to opportunities presented because of COVID-19, you may be better off exiting sooner rather than later.
- Is your current business model sustainable? Do you need to change your business model to conform to the new challenges brought on by the pandemic?
What are your financial needs and expectations? Think about whether your goals are attainable. If you’re concerned about a second Great Depression, consider lowering your financial expectations or adjusting your planned exit timeline. It’s also smart to get outside advice.
What is your dream after you exit? Define it – and get excited! It may be closer than you think.
CEFO Advisors is located in Saratoga Springs, NY. We work closely with small business owners defining their exit strategies and hold them accountable. For more information, call Amy Roman at 518.693.7446 or email aroman@cefoadvisors.com.
