You’ve worked hard and built a bootstrapped, profitable business. Congratulations! That alone is a very impressive feat.
Maybe you’ve been working at it for years and are getting tired..
Or maybe you’re getting more excited about a new project..
Or maybe you’ve been running the calculations in your head on what a potentially life changing exit you could have if you decided to sell!
Achieving an exit is a goal for many entrepreneurs and people can have different motivations for doing so.
However, when it comes to an exit, there isn’t just one way to do it.
Let’s explore three different ways you can exit your business.
1. Sell Completely to Exit Your Business
The first option to consider is to sell your business completely. This means you will sell 100% of your business to another party that will take it over and continue running it.
This is a good option for you if you are tired of running your business, have other projects you are excited about working on, or want (or need) the cash you’d get from an exit, among others.
Additionally, if you think your business has long-term challenges on the horizon, or you see a downward trajectory, selling outright is a good option.
You’ll likely get a multiple around 3x your yearly profit. So if you think your business will not be able to earn 3x your yearly profit, then selling could be good to explore.
The most common way to pursue an outright sale would be to work with a broker.
Some of the benefits of using a broker is that they usually have lists of buyers that they can market your business, which can make the process faster and easier for you. They can also assist you in preparing marketing materials and coming to an agreement with the prospective buyer. This can be very useful especially if you are new or unfamiliar with the whole buying/selling business process.
However, keep in mind the broker fee is usually 10-15%, which could get quite substantial if you are looking at a large exit.
Aside from using a broker, you could pursue a private buyer. This means finding a buyer and coming to an agreement directly.
The benefit here is, obviously, that you’d save the brokerage fees. But the challenge then becomes finding the buyer, negotiating and closing the deal which falls 100% on you.
If you are looking for a buyer, I’d suggest starting with strategic buyers.
A strategic buyer is a person or organization that would be able to leverage your business for additional value compared to an average buyer. For example, you could sell to a larger competitor who could cross sell your products to their existing customers, or, another business that could cross sell their products to your existing customers.
Make a list of potential strategic buyers and start reaching out to see if they are interested.
If you want to go the broker route, a few brokers that I’d recommend are The FBA Broker, QuietLight Brokerage, Empire Flippers, and FE International. I know these guys personally and they do good business and take care of their clients.
You want to be really careful in choosing a broker if you decide to go that route. Be sure to choose a broker that has specific experience selling businesses of your type/size.Additionally, be wary of any broker that promises you a significantly higher valuation than other brokers you connect with. Promising higher valuations can be a tactic used by shady brokers to get you to sign with them and get locked into exclusivity for a time period.
They promise you a higher and unrealistic valuation to get you to sign with them, and then, overtime, lower the price to what is more realistic, but no one buys at what they originally promised you. This can waste your time and wear you down to a point that you accept a low-ball offer to just be done with it and move on.
Deal fatigue is a real thing. It’s best to go with a reputable broker that you trust and not just chase the highest $$$ offer that someone ‘promises’ you.
What if you want to remove yourself from your business but don’t want to sell directly? Or what if you see the long-term prospects of your business as being very bright but you just don’t want to be the one to take the business there?
If that is the case, then hiring someone to run your business could be a good option for you.
2. Hire someone to run it while improving cash flow
An option that is often overlooked is hiring a GM or CEO to run your business for you.
This means basically hiring someone to take over the day-to-day operations and allow you to elevate from a Manager to a Business Owner or Investor (referencing Robert Kiyosaki’s Cashflow Quadrant).
This is a great option if your business is profitable and you see a positive future outlook for it, but you don’t want to be the one to run it yourself. Maybe you are tired of running your business or you have other ideas you want to pursue.
If you hire someone to run your business for you, this allows you to further unplug and only be involved at whatever capacity you are interested in. It also allows you to keep your cash flowing asset and future potential leverage that comes from owning a profitable business.
To get started, first evaluate if anyone on your current team could step into the role with more responsibility. If not, then start the hiring process. Use the hiring funnel I’ve used to recruit100+ people over the years to get you started.
What if you want (or need) to take out a chunk of cash or want to take some chips off the table? Or what if you love the business you’ve built but recognize you could use some help to take it to the next level?
If that sounds like you, selling a part of your business could be the right option.
3. Take on an investor and sell part of your business
Another option that in my opinionis severely underutilized is selling a portion of your business to an investor/partner.
The structure and details for this option can range wildly from selling a small minority stake to selling a controlling stake.
The ideal structure for taking on an investor/partner really depends on what your business goals are.
Selling a portion of your bootstrapped, profitable business is NOT the same as taking on a VC for a startup. There is a new model for bootstrapped businesses investing that is emerging that is more long-term aligned with founders and presents some really exciting possibilities.
A common reason to sell part of your business or take on an investor is to give yourself the opportunity to take some chips off the table.
Even if you are running a successful and profitable business, your compensation could be quite modest. So, selling part of your business can give you the option to collect some cash to give you further financial security and the confidence to keep building your business for the long term.
Interesting: Pre-Exit Accounting Fundamentals
Another reason to take on an investor is to get help to grow the business beyond what you are currently capable of.
Many investors have great experience growing businesses and can advise you to get to the next level. Furthermore, investors can be great for tapping into their networks, holding you accountable, opening up doors to additional opportunities, etc.
I personally took on an investor when my eCommerce business was getting traction in 2015. The business was growing fast, but cashflow was a big challenge. So, I sold a minority portion of the business to a good friend and seasoned entrepreneur, Travis Jamison.
Travis’ investment allowed me to put some cash into my pocket which brought me a new level of financial security. Furthermore, it was through a contact of Travis’ that we ended up selling the business a few years later! This was a great example of a win/win situation.
In the last few years, I’ve also invested in a handful of other bootstrapped, profitable online businesses. So far, it’s been great for the founders and for me as an investor/advisor.
The founders were able to take some cash off the table as well as get support from me and my network to keep growing. That includes support in hiring, getting financials and operations cleaned up, and marketing and business development.
Must Read: Save Cash on Your Taxes
My goal as an investor/advisor is to add 10x the value of my cash investment to the businesses I am a partner in.
I’m very happy to be involved as an advisor and help businesses grow. The result has been exciting growth trajectories for the businesses, as well as good ROI for me as an investor.
If this is an option you are interested in pursuing, shoot me an email at [email protected] I’d love to explore further to see if there could be a good fit. You can also reach out to Travis at Smash.VC.
Taking on an investor is a really great way to grow your business easier and faster and set yourself up for a larger exit (or cash flow) down the road.
Which option is best for you? That is something you’ll need to consider yourself. Hopefully, this breakdown will give you some food for thought to help you decide what is best for you and your business.