She is a small business advocate who understands what it’s like losing money selling a business. Jessica Fialkovich’s experience inspired her to create the company Exit Factor to help entrepreneurs avoid mistakes when buying, growing, and selling their business. In this guest post, Jessica shares five tips for a successful business exit plan.

Strategies for Making a Successful Exit from Your Business

It may seem unthinkable now, as you devote yourself to building a business you love, but one day, the company will no longer be yours. Whether you pass it on to your family or sell it to another party, the transition will be smoother for your successor and more profitable for you if you’ve been working on your exit long before you turn over the keys.

Every owner needs a plan for leaving behind a successful business. Profitability brings better purchase offers, creates a smoother transition for the new owner, and builds a legacy of which one can be proud. To maximize your business’ value for that inevitable day when you step aside and give the reins to someone else, there are several strategic moves you should begin making now.

First, understand that running a business with the end in mind is a very different strategy than working to maximize revenue day to day or year to year. It’s a long-range view that takes three to five years at a minimum and focuses on profitability and growth.

1. Set your exit goals

You can’t plan a journey without knowing where you’re going. When do you want to exit, and what kind of asking price do you want? Do you want to be out in three years and sell for $10 million? Two years for $20 million? Decide what you want and then devise a plan to make it happen.

2. Start tracking key indicators

The numbers are like your score, and it’s the final score, not the quarters, that counts. The top numerical indicator is your company’s EBITDA, its earnings before interest, taxes, depreciation and amortization; in a word, its profitability. A healthy company generally sees 15% growth year over year.

Some experts say 5% year-over-year growth is necessary, 10% is good and 15% or more is excellent. I believe in shooting for excellent.

3. Analyze long-term health

Revenue and expenses will tell you how you’re doing today, but other qualitative factors will tell you if you’re going in the right direction for a profitable exit ten years from now. One of the most telling qualitative indicators is the owner’s role in the business. A highly involved owner may make clients feel more confident and may, therefore, bring in more revenue today, but what happens when they step aside tomorrow? Will potential investors even be interested if the linchpin is gone?

The owner’s contribution to revenue should be less than 20%. If it’s higher, you should work to get it lower over time. If it stays constant, you’re not solving the problem of the owner being too involved in the business.

4. Diversify for the future

We’ve all heard that expression, “The riches are in the niches,” but as you look toward your future exit, be careful of too much specialization. Your successor will want to see growth opportunities, and if you’re too highly niched in your industry, you may be limiting or eliminating your prospects. For instance, if you’re in the energy sector, you might decide to develop your oil and gas business over the next twenty-four months but balance it with real estate over ten years.

Over-concentration in one area creates risk in a buyer or investor’s mind, and the one thing investors and buyers avoid is risk. You don’t have to be all things to all customers but leave some room for expansion within your field.

5. See it like a buyer

Today, you’re probably seeing your business through customers’ eyes. To plan smartly for your future exit, you must see it like a new buyer or new investor. Plan with profitability and growth in mind and you’ll make a smooth exit when the inevitable day when you must bid good-bye to the business you raised to maturity.

To learn more about strategizing for a profitable business exit and how Exit Factor helps business owners increase profits, streamline operations and boost business value, visit www.exitfactor.com.

Exit Factor™ offers a proven method that helps small to mid-size business owners maximize their company’s value. Logo used with Jessica Fialkovich’s permission.

About today’s writer

Jessica Fialkovich is a Business Exit Expert, Author, Speaker, and Small Business Advocate. When she sold her first business a decade ago, she had no idea where to start. Fortunately, she was able to exit successfully and then buy her next business — a business brokerage office. For ten years she has built her Transworld Business Advisors franchise to be the fastest growing and most successful business brokerage firm in the U.S. But she realized that most business owners that decide to sell are not prepared, and although hundreds of experts will teach you how to start a business, how to grow one — very few will teach you how to sell.

In founding her education firm, Exit Factor, she decided to pull back the curtain about how the business sales process works and give buyers and sellers the tools to successfully (and profitability) complete a transaction.  She is an entrepreneur at heart and successfully built and sold two startups, along with my husband and business partner, Al. When not at work you her find in the mountains exploring with Al and our dogs (Sailor and Moose), spending time with her new son, Brix, or attending as many Springsteen shows as she possibly can.

For information about franchising with Exit Factor, visit www.exitfactorfranchise.com.