Many business owners will say they want to develop an exit strategy because they’re fed up and want out of their business.
However, there is a profound relationship between the valuation of the business and its stage of development.
Say for example a business is cash flow positive but the owner is working 60-80 hours a week. With the business at this stage, you’re basically selling a job. The buyer will have to come in and work that business as a day job (or hire some to do so). For that reason, the business at this stage is going to be worth much less than a business with little to no involvement required by the business owner.
The higher the business is in its organisational development the higher the multiple of earnings the business will fetch at the time of sale.
A good exit strategy starts long before you want to leave. The less the business depends on you, the more it is worth, and the more choices you have when the time comes. Start by asking what a buyer would actually be buying, and what would need to change for them to pay a higher multiple. If you want to look at how to build that kind of business, have a read of how to unlock business scalability. For some general background, there is a helpful overview on Wikipedia.
