Now what do you do?
You’ve spent years building your business to be financially successful and personally fulfilling. Now that you have achieved that, what happens next? How long do you plan to continue to work? Who will take over your business when you no longer want to be involved every day?
If you don’t have answers to these questions, it’s time to engage your thought process and your best and most trusted advisors to develop the answers.
None of us will work in our business forever – we’ll exit either by closing the doors and walking away, by selling or transitioning to a new owner, or because we pass away. Choose your preferred method of being done with your business and plan accordingly.
It can be okay to just close the doors and walk away – maybe your business plan has been just to provide yourself with a job – that’s legitimate. You should still consider what may happen to your customers and employees should you exit “unexpectedly.”
Most business owners have a vague thought that they will eventually sell their business – maybe for enough to fund a decent retirement – maybe to a family member or key employee. All of these are good ideas, but ideas are not the same as plans. Talk your ideas through with a trusted advisor like your CPA or lawyer. If your idea involves family members or key employees, talk it through with them to be sure their vision is lined up with yours.
As your ideas progress into plans, document your plan to be very clear about what you intend to do, and when.
According to Wikipedia:
- An exit strategy is a means of leaving one’s current situation, either after a predetermined objective has been achieved, or as a strategy to mitigate failure. An organization or individual without an exit strategy may be in a quagmire. At worst, an exit strategy will save face; at best, an exit strategy will peg a withdrawal to the achievement of an objective worth more than the cost of continued involvement
- In business, an exit strategy is a way to transition one’s ownership of a company or the operation of some part of the company. Entrepreneurs and investors devise ways of recouping the capital they have invested in a company. The most common strategy is the sale of equity to someone else.
The key word is “PLAN.” To accomplish your goals, you need to make things happen, not just let things happen. Up to 35 % of business owners say they will never sell their business. That’s fine, but it’s still important to plan for your customers, partners, and employees to be prepared for the eventual outcome.
The other 65 % of business owners do think they will sell their businesses. If you are in this majority, there are several things that you should consider as you develop your plan. These include:
- Your future role in the business – do you want a phased exit?
- Your liquidity needs – when do you need the cash and how much?
- Your company’s future potential – a strong business can easily outlast the founder
- Current market conditions that may impact timing and value – consider exiting when your industry is “hot”
Keep in mind that it can easily take five years to prepare a business for sale – to get the price that you want to get. Don’t put your business on the market until you have reason to believe that the price tag will meet your needs – do your homework and get the advice of a professional as you go through this process. Business owners can take actions while they are running the business that will result in a higher value on the sale date. Start early to maximize this value.
How do you build value in your business?
- Build a business that is not dependent on you. Can your business run without you for weeks at a time? Do you have a team in place to handle all of the operations of the business? Consider that a buyer taking over your business may not have the expertise you have in your industry – make it a turnkey operation for your buyer.
- Business processes that are repeatable and not dependent on a particular person to be done correctly. The process itself needs to be clear so that any capable and qualified person can successfully follow the process.
- Business systems that function smoothly – avoid systems that only you can understand. Get your accounting system, customer management system, and all business operating systems running so that any trained person can run them.
- Evidence of compliance with all requirements (tax, legal, environmental, etc.) Definitive documentation will reduce the unknown liabilities related to your business – an attractive feature for any buyer.
- Full separation of business and personal finances. To assess the results of business operations, it is important that your personal expenses are not included in the P&L. Make a practice of paying those expenses personally so that your business P&L reflects only expenses related to your business.
- Retain equity (cash & assets) in the business. The strength of your balance sheet is as important as the strength of your P&L. Maintain a clean balance sheet with all accounts reconciled and pay attention to your liquidity and working capital ratios.
As you begin to make decisions about the future of you and your business, document what you want. You can start with writing it all down, then proceed to talking with others who may be involved in your plan, then work with your tax and legal advisors to make your plan into a reality.
It’s not really a plan if it’s just in your head. Engage your advisors and put things in place to ensure that your plan will become a reality. Write it down, talk to others, update your plan regularly, and your exit plan will become integrated with your business plan.