Parker Revenue Growth Strategies

Planning For An Exit Strategy

Oct 14, 2022

When I am going through the organizational fitness business assessment process with business owners, one of questions that I ask is, “What is the value of the business”? Often times, I hear, “I”m not sure, or its worth millions more than the balance sheet indicates”.

An entrepreneur must be committed to building a company with which they intimately identify yet, it is essential for the same entrepreneur to have a well thought out exit strategy prior to meeting with a broker or private equity group to consider selling the business. Private equity firms or institutional buyers will institute a due diligence process that will look under the “covers” of the best managed companies and they will deduct points from the asking price if certain elements of business management are not in place.

More than 70 percent of business owners have no exit plan at all. Due at least in part to this lack of planning, only 30 percent of family owned businesses survive through the second generation. The bottom line is that too few business owners are proactively planning for their inevitable exit. They typically are so consumed with working in the business that they fail to work on the business. If they do think about an exit strategy, millions of dollars could be at risk because key business components are not in place.

Most private equity firms and institutional buyers analyze the following components when conducting the due diligence process for a prospective acquisition:

Business Assessment

High profits and strong revenue momentum for long-term sustainable earnings result when businesses perform well in these areas of the company:

Industry-Business Trend Analysis

  • Economic Trends
  • Competitive Landscape
  • Consumer Purchase Behavior
  • Emerging Market Opportunities

Company Strategy and Business Plan

  • Business Plan in Place
  • Operating Plan in Place
  • Strategic Planning Process Exists

Human Resources

  • Key Management Group Performance Management in Place
  • Management Team Fully Aligned with the Direction of the Company
  • Can the Current Management Team Survive Without the Owner?

Intellectual Property and Risk Management

  • Has Intellectual Property Been Properly Valued?
  • Contract Management Valuation
  • Outstanding Legal Issues

Customers and Account Management

  • Customer Relationship Management
  • Customer Penetration {Too few clients represent a large percentage of revenue}
  • Market Positioning and Competitive Advantage

Products and Services

  • Innovation Product Process Development
  • Key Customers Involved in Product Development
  • Percentage of Revenue from New and Staple Products

Financial Management

  • Financial Statements Audited {Compiled, reviewed or full audit}
  • Business Key Performance Indicator Measurements in Place
  • Financial Controls in Place
  • Operations and Financial Management Tightly Integrated
  • Pricing Models and Margin Analysis in Place
  • Cash Flow Systems are “Top of Mind”

Operations and Supply Chain

  • Supply Chain Fully Integrated Throughout the Organization
  • Cost Management Plans Fully Implemented
  • Vendors Managed by P&L Analysis {Who is delivering profits}?

Business Development

  • Focused Prospective Customer Development Plan in Place
  • Differentiated Channel and eCommerce Business Plan in Place
  • Customer Relationship Management Process Evident

Physical Plant and Capital Investment

  • Ensure the Capital Expense Process is Fully Integrated with the Financial Position of the Company
  • All Facilities are Valued and In Good Repair

Exit Planning Process

3 columns of different shades of green showing the exit criteria in one column, exit planning in another column, and exit strategy stages

The Exit Planning Process should begin two to three years ahead of actually engaging with private equity groups or other institutional buyers. It makes sense to engage a valuations firm like Vantage Point Advisors, founded by Todd Poling, President and CEO.

A well planned, realistic strategy to exit the business at a targeted level of valuation or to pass it on to the next generation is indispensable to all emerging growth companies. Take the time and devote the focus required to exit it successfully and use Parker Revenue Growth Strategies to drive revenue, increase profits and value by instituting the organizational fitness business assessment process.