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.
Planning your exit well includes many steps – the initial focus is on understanding when and why you want to exit your business. The plan culminates in a multi-year (preferably) plan to achieve your goals.
Introduction to Your Exit Plan
- Purpose & Objective
Post Exit Goals
- Personal – what will you do with your time?
- Financial – how much money do you need to support your lifestyle?
- What is your value gap?
- Understanding of the options that you have for an exit
- Business valuation for your desired options – they are not created equal
- What you get vs what you keep – know what each option will mean for you
- Alignment with your goals
Define Your Strategy
- Determine which options best match your goals
- Understand where you are compared to where you want to be
- Set specific value-building steps to achieve your goals
Implement Your Strategy
- Follow the steps you have set for yourself to prepare your business for a successful exit
- Create your team, legal, tax, estate planning, financial planning, accomplishing a “deal.”
- Identify a deal maker (when deal time approaches)
- Legal agreements
- Personal financial planning