EP208: Building a Business with an Exit Strategy in Mind

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Hi there…

You know how every flight starts with a safety speech, and always tells you to locate your nearest exit? 

Welllll, we think every business venture should come with the same announcement. 

To stay prepared for anything and set yourself up for success, it’s important to have an exit strategy built into your business plan from the very start. 🙌

 

Have you ever been in an unfamiliar territory or maybe even an unfamiliar country where you can’t read any of the signs?

There’s something comforting about knowing that an exit sign is lit up nearby, no matter what language you speak?

Why?

Because nobody likes to feel trapped, whether it’s inside a building, in a subway station 🚇, or running a business.

➡️ Listen, guys, if you’re running a business, whether it’s successful or not, you better have an exit strategy in mind.

You might be thinking – but I love what I do!

That’s awesome, but if recent changes in the economy have taught us anything, it’s that nothing is for certain.

This means that whether you’re a yogi at heart or not, it’s time to practice some flexibility. 

Don’t worry, you don’t need to run out and purchase a yoga mat.

But what you do need to do is think about how you can save yourself from extinction so that you don’t end up in your own dinotopian extinct era. 🦖🫨

But if you want to earn a massive payday that is 2X or more than what you’re currently making, then you’re in the right place. 

So how do you get from here to there? In today’s episode, we are going to tackle that question with three crucial questions. 

⭐ First, what makes an exit strategy effective?

⭐ Second, how do you position your business to maximize its value for a future sale or exit? 

⭐ And third, what are the key mistakes to steer clear of while planning your exit strategy?

But first, we want to tell you a chilly story about a time that we got stuck, very stuck, on a big a$$ boulder in Iceland. 🧊

A few years ago, we were doing a cross-country 🚙 road trip there, and we thought it would be a great idea to climb on top of some really massive boulders to see the beautiful valley below. 

In theory, this was a great idea, and we started our ascents all the way to the very picturesque top. 

The view was mind-blowing!

But once we took the view in, we realized that we were on top of a 14-foot boulder, with no easy way down, certainly not one that didn’t risk a sprained ankle or broken foot. 

This same exact issue might happen to you as an entrepreneur.

You might not have a boulder issue, but you might be trapped in your business plan with no exit. 

Many business owners dive into starting their company without giving much thought to the end game.

It’s a common pitfall because, let’s face it, most of us dream of that big payday down the road. 😵😵

However, without proper planning, you might find yourself running a business that ticks along but falls short of the lucrative exit you envisioned.

For us, we try to always consider our exit strategy in our 🏢 multifamily apartments business, even before we become the property’s owners.

Think of it like reading the end of a book first, but without spoiling the ending!

Why You Need an Exit Strategy

This point hits close to home for us.

We’ve experienced business soaring like rockets 🚀, only to come crashing down because we didn’t plan for a proper exit.

Our fashion business is a prime example.

At its peak, we were pulling in multi-million dollars annually.

But without an exit plan, we found ourselves at the mercy of our clients’ business failures.

As much as it pains us to admit this, not having an exit plan probably actually cost us millions… somewhere in the 8-figure realm.

Think about it; our business was worth around $4-5 million in exit earnings before interest, taxes, depreciation, and amortization. 

That’s not the kind of math we like doing, but it’s important to be realistic and also to assess opportunities while analyzing past failures. 

So, you should always approach a business with the endgame in sight.

Have multiple exit strategies in place and be ready for scenarios where one or more might not pan out. 🤓🤓

Ensure you can hang onto the business a little longer while you rework a new exit plan or wait for the right timing to maximize its value.

Your Personal Roadmap

Let’s take our apartment investing business as an example.

We constantly prioritize the exit strategy.

When we’re considering an apartment, we carefully observe what potential buyers desire. 

Who’s in the market? Think major players like JP Morgan, Black Rock, and private equity giants.

We’re deconstructing the process—what assets draw their interest, what returns do they seek, what’s the property size, the median income?

These factors are absolutely critical.

Consider our development project, for instance. ⏬

We’re constructing single-family townhomes. 

We always consider – who’s the target buyer?

It could be institutional investors seeking built-to-rent communities, fellow apartment syndicators like us, a family office aiming to enhance their portfolio or someone with a substantial 1031 exchange ready to acquire the townhomes. 

It’s a strategic game for us, more like chess than checkers. 🏁

Before committing to anything, we dive into the numbers.

✔️ What’s the net operating income?

✔️ Cash flow?

✔️ Operating expenses?

✔️ Growth trajectory?

If the figures don’t align for a strong exit plan, we step away.

Smart purchases are all about having a clear strategy from the start.

When delving into business, always keep the end goal in sight.

Identify your potential buyer because they pave the way for that big payday.

Master your financials and thoroughly grasp your property or business—understand its income potential, operating costs, and growth trajectory.

Align your team—be it managers, business partners, or property management—to ensure everyone’s on the same page. 😌😌

Our playbook is straightforward. We’ve got a roadmap, an action plan.

Flexibility is key—we’ll pivot as required.

As Mike Tyson famously said, “everyone’s got a plan until they’re hit. “

But our north star? 🌟

It’s constant. 

Our exit strategy aims for at least a 2X multiple.

For you, it might be 2X, 10X, or perhaps 100X.  😝😝

Strategies for Success

Looking back at our successful exits within the multifamily apartment realm, we’ve been fortunate to navigate smoothly.

In the past five years, we’ve gone full cycle – AKA sold three large multifamily apartments with an average hold period of 25 months, and on each occasion, our success boiled down to selecting the ideal buyer.

These strategies have been instrumental, and we are so excited to share them with you here.

• Trust Your Broker: We enlist brokers for their expertise, don’t we? We lean on their experience, and it’s an added benefit if they have a history with the buyer. This offers us a glimpse into what the working relationship might look like.
• Evaluate Multiple Offers: When faced with multiple offers, we engage in comprehensive interviews with potential buyers. It’s so important to pose in-depth inquiries to ascertain their capability to seamlessly carry out the transaction.   We can’t risk deals being held up in escrow; execution certainty is key.
• Assess Financial Strength: We thoroughly examine their financial stability. This frequently involves requesting a substantial non-refundable deposit as a show of commitment.  Consider our most recent sale, where we obtained a $1 million non-refundable deposit. In uncertain economic times, this serves as a substantial deterrent against withdrawal.
• Maintain Business Operations: Continuing seamless business operations throughout the sale process is paramount. Not only does this uphold ethical standards, but it also ensures the stability and attractiveness of the business to potential buyers.  Any deviation or decline in the standards and performance might not only be seen as unethical but could also raise concerns and potentially breach the terms outlined in the sale agreement.  Consistency in operations not only maintains the business’s value but also assures the buyer of a smooth transition, reinforcing their confidence in the acquisition.
• Prepare All Documentation: Getting all the paperwork in order before the final close is a game-changer. 

You can’t beat that feeling when millions land in your account post-sale—it’s a serious thrill.  😘😘

And you know what’s even better?

Sharing those gains with your investors.  🙌

It’s like putting the cherry on top of a successful deal, knowing everyone’s walking away happy.

Having everything squared away in terms of documentation just smooths out the whole process, making sure that thrill isn’t delayed by any paperwork hiccups.

Well, that’s it for us today. Thanks for joining us to learn about your exit strategy, and make sure to tune into this episode for more insights on Business Skills That Can Make You Millions!

In November, the rate at which prices are going up in the U.S. continued to slow down. This suggests that the Federal Reserve’s decision to raise interest rates is having a positive impact. The Consumer Price Index (CPI), which measures the cost of goods and services, went up by 3.1% compared to the previous year. This is slightly lower than the 3.2% increase seen in October but still higher than the Fed’s target of 2%.

When we look at core inflation, which excludes volatile factors like energy prices, it remained stable at 4%. However, energy prices, especially for gasoline, dropped significantly during this period.

Housing costs, a significant contributor to overall inflation, increased by 6.5%, but this was the slowest rate of increase in over a year. If we don’t include housing, the prices of other goods and services only went up by 1.4% annually.

⭐ Inflation Slows to 3.1% in November 2023

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