What's Your Exit Strategy?

The recession had hit and business was drying up. Customers just weren't spending. "Make do with what you have" was the resounding strategy. Based on the fact that there was no relief in sight, he ultimately decided that he didn't want to overextend his credit and sold his business to All Covered (see "M&As: Life In The Fast Lane").

The interesting thing is that Ford wasn't a VAR with an older business model of hardware reselling. He wasn’t left in the lurch when a big vendor he relied on changed its channel strategy. Ford had built his business on managed services, and he has been on our Fast Growth 100 list for the past four years. In fact, in that time period he almost doubled his revenue from $2.6 million to $4.9 million.

Nonetheless, the "Great Recession" forced him to take the company in a direction that he hadn't expected. It is an interesting example of what VARs of all sizes across the country are facing today.

Some VARs are two sales away from shutting their doors. Others are running a break-even business. Still others are trying to invest in new technologies or create new opportunities around technologies such as cloud. Certainly, every business has different goals and every owner is at a different stage of his or her career. These are all considerations as VARs look to figure out their business road maps.

Ford, who is in his late 30s, said he didn't want to burden himself financially so early in his career. Other VARs, who have been in the business for 25 years, may just want to ride out the recession with retirement on the horizon.

Regardless of what stage they're at, VARs need to figure out their exit strategy. Life brings unexpected twists and turns and planning can help navigate through these uncertainties. What's more, as VARs plan for their own personal financial future, they need to look inward and really assess the worth of their business and what makes their business attractive to a prospective buyer.

What type of business are you running? What is your differentiator? What percentage of your sales are products vs. services? And what about recurring revenue? Have you moved into managed services where it is easier to quantify your business and future-proof in tough times? What does your business provide for the acquirer that they can't build themselves?

If you have even the faintest idea that you want to sell your business, you should probably answer those questions and get a business valuation from an outside independent source. An outside broker will be able to assess your business' market position, financial situation, and strengths and weaknesses. Dig deep. Do you understand the true profitability of your business? Can you quantify the business' worth? According to experts, selling a business can take two years, and you'll need to be prepared with financial documentation and sustainable profitability.

Even if you have no plans to sell or retire anytime in the future, answering these questions -- and more -- would be an interesting exercise. Life surprises the best of us and should you be caught off-guard, you'll be prepared to get the right price for your business.

BACKTALK: Kelley Damore is VP, Editorial Director for Everything Channel. You can reach her via e-mail at [email protected].