The digital transformation plan is an important component of your exit strategy.
During a business’s lifespan, there may come a time when one may feel the need to exit or move on from the business for a variety of reasons, whether retiring, liquidating, family succession, merging, market chnges, or legal situations etc. Whatever the reason, it is always wise to have a well-defined exit plan and be well prepared in advance for any situations requiring to hand over the business, while ensuring maximum profits while departing. A good exit strategy is a reflection of the ongoing growth strategy that will add value to the business and indicates the capability of a business to grow and scale.
Why is an exit strategy even necessary?
- It is an opportunity to reduce and liquidate your stake in the company and get a fair profit share.
- If the business is facing non-recoverable losses, exiting allows you to limit the losses.
- Once the business has met its objectives, one can cash-out their investment.
- In the case of trading, having an exit strategy in place is an efficient way to minimize losses and lock in profits
What matters while making a good Exit Strategy?
- The company’s operations must be standardized and run independently, irrespective of the management team.
- A well-planned exit strategy must be flexible to accommodate any unforeseen situations in the future, both positive and negative.
- Defined systems and procedures must be in place for operations, finance, logistics, sales, etc, that are capable of generating reports and data for review.
- Quick and efficient handover of operations without spending too much time in training new management or employees.
Although it’s important to plan the exit strategy from the start while taking into account all the likely circumstances and factors, a lot can go wrong when the actual time comes. A survey published in Canada’s Financial Post of 100 Canadian business owners who sold their businesses, stated that the majority of them were dissatisfied with the outcome of their deals and admitted to having made some key mistakes. The same is true for 75% of American businesses that failed to accomplish their financial objectives.
How can one prevent errors and get the most out of the business?
- Plan in advance: Planning ahead will give you the edge to sell on your terms, choose when to sell, avoid unforeseen costs, and anticipate market trends so that you may position yourself effectively.
- Estimating the worth of the business: A common mistake people make is to undermine their business value. One must evaluate the business’s worth considering various factors like potential objectives that the purchaser may achieve by collaborating, economies of scale like market expansion, purchasing power and manufacturing viability, and technology acquisition or customer base. All these factors spike up the value of the business more than the actual financial evaluation.
- Strong hold on information: Keeping good information control, maintaining data confidentiality, and reserving the rights initially, keeps the business safe from falling prey to false deals or undervaluation. Letting out too much information too early may lead to misunderstandings and weaken the edge during negotiations.
- Upgrading and integrating operations with IT: Using information technology to strengthen your systems and operations not only consolidates them, but also increases their value and gives you complete control over them.
So how does digital transformation strengthen the exit strategy?
The digital transformation is a technological evolution that every business owner has to undergo sooner or later, no matter what shape or size of the business. While it is essential for the smooth transitioning of the processes, and can further impact the overall dynamics of how the business is conducted, it can dramatically support the business’s exit strategy as well.
A viable digital transformation plan makes the business agile and adaptive to the changing environment, helping to build long term value that will pique the buyer’s interest. On the other hand, one can leverage this robust digitally supported business infrastructure to set their terms while creating an exit strategy. Following are a few digital transformations that can help a business to grow and scale.
- Process Automation: By simply transitioning from manual to automation, allows for improved accuracy and quicker processes, resulting in better use of resources and less room for errors. Switching to modern operating systems, ERPs and CRMs, processes are more transparent, traceable and accountable, facilitating smooth transition.
- Streamline operations: With all the operations logged into one integrated system, it is easy to access information, monitor progress, spot bottlenecks, and reduce errors. Only a few hours on the system, will give a complete summary of the operations and identify areas for improvement.
- Consolidate data: Digital infrastructure generates a pool of valuable data from every aspect of the business, and in formats that are simple to understand. Digitalization incorporates this data into reports for everything from customer engagement to employee engagement, operational and financial planning, stocks and purchases, sales growth, and profits and expenses. Organizations can analyze this data to get business insights, make informed decisions and map out strategies that will maximize efficiency of the operations.
- Measurable growth: With the availability of accurate and real-time data, it becomes easy to measure performance, track results, and compare them with previous trends. Digital infrastructure is an effective tool for both the seller and the buyer to estimate business’s value with more accuracy.
- Mapped Customer Experience: The new stakeholders are spared from having to lay the groundwork from scratch. When the business is already running on digital platforms, every single customer engagement throughout the sales funnel is recorded, mapped, and evaluated. It provides a great source of insight into the customer experience and serves as a foundation to re-evaluate and launch marketing strategies.
Even if the businesses managed to exist without or with very little digital intervention, they cannot do away with it during the transition. Not only must one adapt to the changing face of business using digital tactics, but also need to evolve to maintain a competitive edge and create a value offer that the market will find appealing.