When planning a business exit, one scenario does not seem to fit all, especially when we compare a service-based business with a product-based one. Whether it’s retirement, a new venture, or a simple sale, the type of business you are involved in will significantly impact your business exit planning.
Understanding the differences can assist owners in crafting specific exit strategies for the business that better help maintain their legacy and gain maximum value.
The Nature of the Business Influences the Exit Plan
A service-based business exit has to do with relationships, expertise, and often, the personal identity of the owner. However, in product-based companies, the flow is around inventory, manufacturing processes, supply chains, and tangible assets. All these things impact how buyers assess the value of the enterprise, the types of risks that they see, and what transition plans must be in place following the sale.
Service-Based Businesses: People and Processes
For service companies such as consulting businesses, salons, or marketing firms, the value rests in their people, contracts, and relationships. Hence, ownership transition is a very sensitive task. The buyers are worried about the retention of customers, employee loyalty, and knowledge transfer. Thus, the key part of a business exit planning entails documenting workflows, creating transferable systems, and sometimes staying around on a limited basis while completing the transition.
Assuming entrepreneurship is an important factor in the selling process of a service business, the owners usually need to distance themselves as the “face” of the company to make the brand independent and thus enhance its appeal to the buyers.
Product-Based Businesses: Systems and Inventory
The product side of the business relies heavily on maintaining inventory, equipment, supply chains, and establishing brand recognition. Buyers are interested in margins, market demand, scalability, and intellectual property. Good business exit strategies for production companies include cleaning up the books, improving supply contracts, streamlining logistics, and ensuring the correct valuation of physical assets.
While service companies tend to have fewer exit options, product companies can be sold to larger companies or private equity firms that wish to add to their portfolio. For these types of sales, exit preparation needs to be a lot more formalized and data-driven.
Tailoring the Strategy for Maximum Value
Regardless of the kind of business, starting early with business exit planning is very important. For both types of businesses, in any particular case, finding potential successors, predicting growth, and preparing documents such as financial records, customer databases, and contracts build up the confidence and perception of value by the buyers.
That said, the exit strategy has to be aligned with the type of business. In the case of services, it would be more about continuing relationships, whereas, in the case of products, it would lean more toward shipping efficiencies and intellectual property.
Final Thoughts
The most successful business exit strategies are never one-size-fits-all; rather, they are deeply inclined toward the distinctive nature of your company. If you operate a service-oriented or product-based company, then your exit strategy will shape both your financial future and legacy.
If you’re considering your next steps, Adam Noble Group can help you understand the nuances involved. Our customized and well-practiced exit strategy will enable your business to carry on long after you have left.
About The Author
Contact Jeff Adam, PE, MCBC, FRC, CBB at Adam Noble Group, LLC
Phone: (817) 467-2161
www.adamnoble.com
During 3 decades of M&A service, Jeff Adam has successfully completed the sale of over 825 businesses and advised or completed 1,000’s of business valuations and exit plans. An entrepreneur in his own right, he has started and grown 12 companies in fields including international finance, B2B services, business valuation, construction, screen printing, Mergers & Acquisitions, engineering, and manufacturing. Jeff has donated his time as a distinguished speaker at numerous national & international conferences since 1977 covering topics such as environmental services, engineering, media, craft breweries, exit planning, business valuation, charitable giving, management, business brokerage and M&A fields.
Jeff is President of Adam Noble Group, LLC, a national M&A advisory firm, professionally valuing, exit planning, and confidentially selling profitable businesses owned by exit-motivated business owners to qualified strategic, corporate, private equity, partners, management, and financial buyers. The team establishes rapport, builds trust, and educates business owners in the steps to meet their goals as they prepare and achieve the discreet, confidential exit of their business. The firm exclusively represents sellers of $1M-50M value enterprises and endeavors to transfer their businesses to qualified, capable acquirers who will build upon the seller’s vision, goals, culture, and history. Jeff maintains lifelong repeat and referral relationships with sellers, their acquirers, and service providers.
Adam Noble Group has multiple M&A and business broker specialties: Manufacturing, Aerospace Defense Industry, Oilfield services, Technology, Construction trades, Craft Breweries, Partnership Buyouts, Service, and Wholesale Distributors.
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