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The Exit Trap

By , January 13, 2021

Over the last 30-40 years, much of the business literature has been about business owners making the transition from working in their business to working on their business if they want to create a sustainable business and a quality lifestyle.

The E-Myth comes to mind as a prime example as a template to achieve such an accomplishment. In his book, Gerber outlines the methodology to create a business to run without the requirement of the owner’s daily input into decision making or any involvement in the operations as the framework for such a business.

What I have also noticed is that there is not much written about how to orchestrate a graceful exit for the founders so that the business can continue to flourish and grow after they leave. It is this realisation that led me to understand that while we have established that business owners need to work ‘on’ their business, rather than in their business, we have not yet reached the point where it is universally recognised that to get the most from our life’s work and to maximise valuation, we need to prepare our business so that it is exit ready.

One of the biggest barriers to a business exit is that the owner isn’t clear about what they are moving on to. The more the uncertainty, the more likely that a deal will not proceed! Entrepreneurs are visionary by nature and they need to have a picture in their mind of what they are moving towards. Once they have this picture, they will be energised, and nothing will stop them from moving in that direction.

cocktails on a tray

It is with this awareness and working with business owners over many years that led to the development of the 21 Steps framework to help owners to know that their business is exit ready and will likely lead to a relatively quick transaction when they go to market. This gives them great confidence and comfort rather than wondering if there will ever be anyone interested in acquiring the business, never mind at a premium price and without the encumbrances of an earn-out requirement.

Over the coming weeks, I will be writing a series of articles to take you through the 21 Step process. we developed the process after working with hundreds of SME businesses over the last 20 years through their growth cycle and onto their exit. We have learned that the issues are the same across the world for owners making the transition and that they are always:

  1. Wanting to get the most from their life’s work,
  2. Desiring to get a balance between maximising value and leaving a legacy, and
  3. Seeking to leave on their terms.

It is all too often that we see a business that is not exit ready receive an offer and this puts the owners in reactive mode and on the back foot. This only ever results in price erosion as the buyer’s due diligence identifies risks to the revenue forecasts (if they exist), leading to the owners assuming too much risk in the negotiated deal and resulting in a requirement for undesirable earn-out periods. Unfortunately, the odds are that the founder will be unable to complete the earn-out period and will walk away leaving money behind and the whole experience feeling like a messy divorce!

You can avoid this exit trap by using the 21 Steps to prepare your business for exit, allowing you to drive the process from the front foot and leaving on your terms.

In the next article, I’ll discuss step 1 – capturing your goals and desired outcomes.

Darryl Bates-Brownsword

Darryl Bates-Brownsword

CEO | Succession Plus UK

Darryl is a dynamic, driven Business Mentor and Coach with over 20 years of experience and passion for creating successful outcomes for founder-led businesses. He is a great connector, team builder, problem solver, and inspirer – showing the way through complexity to simplicity.

He has built 2 international multi-million turnover businesses; one now operating in 16 countries. His quick and analytical approach cuts through to the core issues quickly and identifying the context. He challenges the status quo and gets consistent, repeatable and reliable business results.

Originating in Australia, Darryl’s first career was as an Engineer in the Power Industry. Building businesses bought him to the UK in 2003 where he quickly developed a reputation for combining systems thinking with great creativity to get results in challenging situations.

A keen competitive cyclist, he also has a B Eng (Mech) Engineering and an MBA.