Most businesses don’t have time to think about an exit, but getting to a business sale should be your number one goal—even if you decide not to sell. It’s the singular best way to monetize your hard work and investment into your company. However, preparing for a sale can seem daunting. So where do you start?
Many founder-CEOs are so focused on the day-to-day that they rarely stop to plan an exit strategy. In this article, we'll break down the complex into a simple framework that you can begin implementing today.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a core metric investors use to assess the profitability of a company. The higher your EBITDA compared to industry averages, the more attractive your business becomes. A higher EBITDA shows that your business is running efficiently and generating strong profits, making it easier to negotiate a higher valuation.
Investors and potential buyers want to see consistent cash flow, which reflects the financial health of the business. A strong history of cash generation reduces risk for buyers and provides evidence that your company is stable. Aim for at least three years of reliable cash flow, as this will also give you time to iron out any fluctuations or seasonality in the business.
Consistent growth signals that your business is on an upward trajectory. If your revenues are growing faster than the industry, you're in a strong position to command a premium price during negotiations. Buyers want to see that there is still upside potential in the business after acquisition, and demonstrating above-industry growth makes a compelling case.
One of the biggest risks in any business is over-reliance on a few key customers. If 50% or more of your revenue comes from just a few accounts, buyers may see this as a red flag. Diversifying your customer base reduces risk and increases the stability of future revenues, which makes your business more appealing to buyers.
A well-established brand can dramatically increase the perceived value of your business. Brand equity attracts not only customers but also investors who value a strong market position. Companies with a recognized brand often command higher multiples because of their market influence and customer loyalty.
One of the biggest concerns for potential buyers is whether the business can thrive without the founder at the helm. To alleviate this, you need a competent management team in place that can run day-to-day operations. This demonstrates that the business is not dependent on you, reducing transition risk and making the acquisition smoother for both parties.
With a clear plan in place, you can smartly grow your business with the end in mind. Whether you aim to sell or simply prepare for the possibility, these key levers are essential to maximizing the value of your company.
If you want personalized help navigating these business strategies and planning your exit, schedule a time to discuss how CEO business coaching can help you build the systems, strategies, and momentum needed to get there.