Selling a Business? Know your Exit Options and Account for your Digital Value

All CEOs should know their exit options and their digital value impact.

By: Dennis Zink

July 9, 2019

If you are considering selling a business now or in the future, you should be cognizant of possible exit strategy options that may be available to you when you sell a business.  You should be thinking about your departure options at least annually. To do this, first evaluate where your company currently stands and review your business game-plan. 

Depending upon your time horizon, you may experience the following: that you are actually running two distinct businesses; your current business as is and the business you are trying to become. With change speeding up daily, the business you are in today will hardly exist in coming years. This tranformation may seem gradual, perhaps imperceptible at times, but I guaranty that your business will and must change to remain viable and competitive for tomorrows marketplace. 

Digital optimization and transformation strategies can help you today and in the future. While making decisions about where to invest, consider the impact on your bottom line and on their impact on your assets and liabilities.

Higher Profit → Higher Valuation

By embracing digital optimization and transformation, thereby changing your company’s culture to be agile and supportive of your goals, you stand to gain many efficiencies in your operations and processes that will greatly enhance your bottom line. With lower costs, you get higher profit margins. And with higher profit margins, your cash flow will most likely improve. Consequently, a better cash flow increases your company value. 

Selling your company is a one-time event and you will want to seek maximum value.  Doubling your profits can double the value of your company for a lucrative exit. 

Treat Digital Assets as Assets

Many small company CEOs fail to account for their digital assets. They don’t fully understand what digital assets are and they don’t recognize them on their balance sheet. Unfortunately, the average accountant doesn’t know either.

Like any other asset, digital assets are real. They may be intangible but they are assets nevertheless. A company that has spent years building its website and cultivating backlinks from authority domains has built a digital treasure chest. This value can be measured and monetized by web experts. Backlinks are a tangible asset. So is digital content. These increase your website’s authority in the eyes of search engines thereby generating higher traffic. Higher traffic provides leads and low cost of sales. Generating a perpetual stream of leads is an important asset.

If you are paying significant sums or you spend endless hours to create digital content and backlinks, you are building your cyberspace presence. That presence is virtual. It’s not much different than building a brick and mortar location. They are both investments that should be on your balance sheet. You can allocate the cost of building digital content and backlinks to business expenses, or you can assign them to your assets and depreciate them over a period of time. But their value remains as long as they generate traffic, leads and sales for you. 

Calculate the Value of Your Website

The national SCORE organization website generates over a quarter of a million organic visits to its website. This monthly organic traffic is estimated to be equivalent to roughly half a million dollars per month in Pay Per Click (PPC) ads. This makes the SCORE.org website worth millions.

If you have a significant blog following or subscribers to your newsletter, or lead contacts in your CRM, you have accumulated significant marketing and sales assets; tangible assets that you can measure and assign a monetary value to. These assets should be part of your balance sheet?

Larger companies add goodwill on their balance sheet. Digital assets are more tangible that goodwill. You can accurately measure the number of landing pages, backlinks, and organic traffic along with its monetary value. You can count the leads in your CRM plus track the open and click rates on your newsletter. All of your digital assets should be part of your balance sheet and these assets can significantly contribute to a higher valuation of your company.

Exit Strategy Annual Review

It is important that you know all your options when it comes to pursuing an exit strategy before you undertake this effort. At SCORE, I led a team to develop an Exit Strategy Canvas to educate CEOs about how to get their companies ready for an exit. Common questions like “what is my business worth? How can I maximize the value of my company? How do I locate buyers? How do I avoid being taken advantage of?” are all important questions on an entrepreneur’s mind when considering an exit. 

SCORE Certified Exit Strategist mentors can walk you through the process and help you identify how to measure your digital assets and include them in your balance sheet to maximize your company’s value.

Timing & Executing an Exit is Not Easy

Exit experts may advise you to sell your company at its peak to maximize the value of your sale. Business value is often gauged as a multiplier of sales; more likely net income or cash flow; selling at the peak produces the best outcome. 

But how do you know when you reached your peak? If your business is trending upwards, there is a good chance that you will continue to grow in the upcoming years. Furthermore, if your business starts to decline due to downward economic trends like a recession, know that recessions will run their course and hopefully your business will rebound.

Your SCORE mentor can help you assess your company’s growth potential compared to your competition and industry key performance indicators (KPI). They can also help you compare your KPI’s against others in your industry to see if you are ahead of falling behind.

The important issue is to seek competent help and SCORE provides free confidential mentoring to help you succeed at starting, running and exiting your business, perhaps more profitably than you thought possible. If I may be of help to you, please contact me at dennis@Time4Exit.com