Exiting a business is not as simple as switching off the lights and locking the doors. It’s a complex process that requires careful planning, strategizing, and impeccable execution. An entrepreneur may choose to exit a business due to various reasons, such as retirement, deciding to sell up, or seeking to bring in funding by selling equity or listing on the stock exchange. The success of an exit, however, largely relies on the ability to illustrate the business’s value to potential investors accurately. This article aims to guide beginners through developing a data-driven exit strategy and making the most of their business information.
The Power of Narrative
Explaining a business to potential investors is not about reading numbers from a spreadsheet. It requires telling a compelling story about the company’s history, current standing, and future plans. This narrative, when backed by data, becomes more convincing, bringing tangibility to the claims. The numbers support the story and provide investors with substantial evidence of the business’s performance and potential.
Importance of Data
The power of data in any business narrative can’t be overstated. Historical data, ideally over a two-year period, helps to present a holistic story of the business. This data identifies trends and allows for credible forecasts. For instance, if a bakery owner seeks funding to open more stores, the potential investor would need to understand the bakery’s setup costs, the investment required, time taken to turn a profit, customer base growth, and staffing requirements. These specifics, supported by reliable data, strengthen the business proposal.
Leveraging Technology in Data Capture
In today’s digital age, technology simplifies data capture and helps collate information in an accessible format for easy analysis and presentation. Automated systems that capture data can eliminate the need for time-intensive data gathering, freeing up resources for optimal business operation. Point-of-sale systems, for instance, can record key performance indicators (KPIs) and automatically update them into a Google sheet linked to a system that visualises data trends in graphs and tables.
Verification and Validation
Once data is gathered and the business narrative formed, it’s crucial to fact-check all the information and validate the underlying assumptions. Regular data capture and review processes can provide crucial insights and allow for assumption validation. It’s essential to ensure your theories align with reality before involving investors, as any disconnects can potentially derail exits and disappoint potential investors.
The Pitfalls of Misaligned Expectations
Mismatched expectations can introduce significant risks during the due diligence process. Discrepancies between the projected business performance and actual figures can create doubts in the minds of potential investors, potentially scaring them off or leading to lower business valuations. Therefore, maintaining transparency and providing accurate data is vital in ensuring successful exits.
The Value of Early Exit Preparation
Starting the exit process as early as possible allows for sufficient preparation and avoids narrowing down options over time. Rushing into making statements and scrambling for data support can be prevented by taking the time to paint a comprehensive and accurate picture of the business.
Strategic Planning From the Start
Successful businesses often consider their exit strategy almost from its inception. Cara Mastrodomenico of Monahans, the largest Accountancy firm in the South West, explains the importance of this: “The most successful businesses consider their exit almost from the get-go. Thinking about what or who you are trying to reach, will help you to build the business with them in mind. For example, if you want to eventually attract a particular company for investment, then you can use this as a lens to run every business decision through. Will a decision get you closer to that outcome? If not, is it worth doing? There may be decisions you’ll want to make regardless but having that aim as your north star will help you to remain on track.”
Conclusion
Data is the lifeblood of successful exit strategies. Capturing, analysing, and presenting it effectively enables business owners to tell a compelling business story, validate their assumptions, and align expectations with reality. Leveraging technology can simplify data gathering, while early preparation and strategic planning from the onset can facilitate a smoother exit process. By harnessing the power of data and making the most of your information, you can secure a successful and rewarding exit from your business.