A while ago our CEO Ariel Menche had the opportunity to be interviewed on the “Acumen” podcast hosted by Dror Wayne. They talked about a variety of subjects, and you can watch the interview below.
One topic Dror asked Ariel about was planning for an exit:
–When should founders or even CEOs start planning for an exit?
–Is it very early on or is that a distraction from doing good business?
–Is it a good practice to be planning a little bit all along so that there is some kind of long-term vision so when it comes time to think about that exit, we don't have to clean up a big mess?
For Raftel Strategy, the answer is as soon as possible. But before you can discuss exiting, you need to understand why a founder created the business in the first place. A founder might want to:
Build a great business and become as wealthy as possible
Engage in a 10-year project to be sold down the line
Spin it up to be sold immediately.
If you’re a first-time founder and you’re going to build a business to sell it at some point, you need to have a plan. You need to know what you’re getting involved with and how early you need to think about that exit.
You need to know why you're building your business.
You can't just think you’re going to build a business to become wealthy, because there are different ways to become wealthy. You could grow your business and hold on to it forever and you'll become wealthy as a business owner – but there are certain life sacrifices you might have to make to do that!
Furthermore, at any given point you might want to ask yourself it it’s worthwhile personally to continue growing your business or to sell it. Maybe the market's really hot right now and you have the opportunity to sell the business for a premium over actual value.
Those are both situations a good founder should consider before they get too far down the road.
Then again, you may be the kind of founder who sees your businesses as almost a parent-child relationship. If that’s the case, then the equation is totally different for you. Every founder is going to be different, and that’s okay, too.
What if you’re not planning on selling the business right now but it's an option down the line?
If you’re setting up a business now or you’ve set one up in the last six months or so, what best practices make sense that will make it easier when you eventually want to sell the business?
There are three things that all businesses should have as early as possible if they want to eventually sell down the line.
1. Good Data
Make sure the quality of your data is accurate. That means it’s coming directly from your
Books and financial records
ERP system
HR system
CRM system
You want to make sure that all those pieces of data can be consolidated into a single report or financial model and that it is consistent. We are always shocked by how many companies we see that have inconsistent data depending on which data source. Having a single source of “truth” as early as possible will save you tons of headache down the line.
2. A Good Data Room
Making sure that all your documents are organized from the get-go will pay big dividends later. Every single person on the team needs to care about good, clean, organized data. It’s not enough for you (as a founder or CEO) to care about it – everyone from your CFO to your finance team to every other department that records data needs to be on board.
3. A Business Strategy
What we mean by strategy is the ability to determine how you get from where you are today to where you have persistent differential returns, or what Ariel describes at another point in the podcast as “cash coming in with a moat around them that’s protecting your margins.” That's what strategy is and is always going to be. The strategic plan is how that actually executes on the field guided towards that goal. Operational excellence is not a strategy – it’s necessary for all businesses to operate effectively but it is not a strategy.
If you’d like to read more about strategic planning, check out our blog post “Why Strategic Finance Matters.”
And of course, if you would like to get a little expert FP&A advice, you can always talk to us. Raftel Strategy has helped 80+ companies streamline financial operations, provide guidance through transactions, and optimize cash flow. If you think we might be able to help you, contact us.
SUMMARY:
Planning for an exit starts as early as possible.
Good data is critical. A single source of Truth will save you headaches down the line.
Start organizing your data properly from the start.
Operational excellence is not a strategy. You need a strategic plan to get you to “margins with a moat.”
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