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When Should Software Entrepreneurs Start Planning Their Exit?

This article was contributed by David Panter, Industry Solutions Manager at Trapeze Group AP.

Timing the Sale

Are you thinking about exiting your business at some point? How will you know when it’s the right time?

In an Inc. Magazine article, Michelle Seiler-Tucker, author of ‘Sell Your Business for More Than It's Worth,’ advises that the right time to sell is when your business is doing well.

"Unfortunately, many business owners wait until a catastrophic event has occurred in order to sell their business and when that usually happens the business is typically trending downward and it's not making as much money as it once was," she says. "The best time to sell a business is when your business is doing well."

While it is easier to sell your business when it’s on the upward swing, properly timing the sale isn’t always that simple. Other factors that may drive the timing include your age and market conditions.

It typically takes business owners about 20 years to build the company to the point that they are able to offer a valuable proposition to a buyer.

Consider where your market is headed. If your vertical is undergoing significant technological change, you may decide to expedite the sale to gain the investment necessary to keep up with market demands.

Prior Planning Prevents Poor Performance

Unless you have a pressing reason to sell, you can just carry on and defer that M&A call until next month, or the month after. However, this can be a risky approach.

You may have heard of the 5P military adage: “Prior planning prevents poor performance.” This is a great motto for business owners to apply to their exit planning.

Proper planning can allow you to reduce your stressors and maximize your returns when you eventually sell. Whether you intend on selling in a year, two years, five, or ten, it’s never too early to begin preparing for your exit. Planning will let you offer a valuable proposition to a buyer while you look after your staff, protect your customers and continue running the business.

Here’s a list of what you can do to plan for your exit:

  • Ensure adequate time to source advisors and buyers.
  • Get your books in order.
  • Clean up ownership structures and install a non-shareholding CEO.
  • Maintain the quality of your team and keep developing your people.
  • Maintain the quality of your products and services.
  • Make connections with acquirers.

Start Planning for your Exit Today

Remember that a little prior planning will go a long way. There are always operational decisions to be made and non-urgent matters like exit planning are frequently deferred, languishing at the bottom of the priority list. However, deferment is really nothing more than a polite way of saying procrastination. The Harvard Business Review offers some research-based strategies for overcoming procrastination, but at the end of the day it comes down to you taking the first step.