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M&A Home -> EXIT STRATEGY -> Exit Strategies for Small to Medium Sized Business -> EXIT STRATEGY
EXIT STRATEGY

Exit Strategies for Small and Medium Sized Businesses, why are they Important?

We are Business Brokers here in the CT NY area that help a lot of business owners develop and execute on an Exit Strategy.  The biggest question we are receiving right now is, "is this a good time to develop and exit strategy?"

The quick answer is "Yes", it is important to develop an exit strategy as early as possible, even when you are starting your business.  The simple truth is there are many ways to make your business more valuable that are not that difficult.  You could develop long term employee contracts for your key employees, enlist some type of annual service agreements for your customers, document or register proprietary trademarks, patents, or other intellectual capital.

Times like these make it even more important.  Fact is, right now might not be the right time to sell.  Let's say you are in the construction business.  Most construction companies did not have a good year last year.  That translates to a buyer who will look to pay you a price based on a multiple of those depressed earnings from last year, even though your company could turn around tomorrow, and begin making earnings consistent with your historical profits.

Hopefully you don't have to sell immediately.  But, you should take this as a wake up call.  Some companies in your industry actually increased their revenue in 2008.  They will demand a primium for their business  for sale.  What did they do differently?  Were they specialized?  Did they have more diversification across their customer base or industry segments?  Do they have long term contracts with their customers?  Are they low cost suppliers of their service?

The key is to look at your business, and try to set it up in such a way that the business has consistent earnings.  Business buyers pay a large premium for consistency.  The turtle wins the race, not the rabbit.  When you go to sell your business, you will be paid a premium for relatively small growth, vs. huge gyrations of large growth and flat years.
 

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