Every business owner WILL exit their business one day. The question is, will you be proactive, or will you wait and just be reactive to the events of life that “force” you to exit? While you may not be planning to exit the business any time soon, I strongly recommend that you start putting your exit plan together today – be proactive!
Coming up with a good exit strategy can feel like a daunting task. It doesn’t have to be. In this article, I would like to give you the three big factors or components to build your plan around.
The 3 Critical Components of an Exit Strategy
The three critical components that every business owner must be thinking about and planning around are financial, timing, and business continuation.
Let’s look at the first component, financial.
Financial: What is My Company Worth?
If you are the owner of a closely-held company probably most of your assets are found in the company (or companies) you own. The biggest anticipated check in your future is an eventual sale of your company. Your hope is that someone will see the value of your company and pay the amount that you desire.
Today there are more than 4 million businesses owned by Baby Boomers, most of whom will try to sell their companies within the next few years. This will create an unprecedented number of businesses that will be available on the open market. No doubt, this will create a buyer’s market and may negatively affect the price you will receive from your business.
For many business owners, their company is their retirement plan. The hope is that they will receive enough cash to sustain themselves through their senior years.
These are just a few of the reasons why business owners need to create a financial plan as part of their exit strategy. This plan will take into account the following:
- How they will replace their current income?
- How much equity they want to receive from the sale of their asset and how they can “cash out?”
- Who the potential buyers are for their particular business?
- Are there family considerations to consider (e.g. heirs, other family members involved in the business, family name, etc.)?
- How will the valuation process work?
- What actions do I need to take today to ensure I get the return desired from the sale or transfer of the business?
FREE Download: Succession Planning Guide
Timing: When Do I Exit My Business?
You’ve heard it said, timing is everything. This is especially true when selling a business. You want to take into account issues such as the strength of the business, profitability, market conditions, and buyer interests.
Ideally, you want to get your business to a place where you’re ready when the right time and the right buyer come along. You want to make sure you have your key advisors and support team in place which will include your CPA, your attorney, probably a consultant or coach, a business broker, and a financial planner. You will also want to have a current valuation to refer to as you consider a selling price.
However, one of the most critical factors related to timing is often overlooked, and that is the mental readiness of you the owner. Are you mentally prepared to let go of your baby? Are you mentally and emotionally ready to move on, or if a transitional buy-out is required, are you ready to work for someone else for a certain period of time? Do you have some new goals or plans to pursue in your life after owning this company? These are some of the most important conversations a good coach can help you work through.
Business Continuation: Will It Survive Without Me
Probably the biggest reason most privately-held companies do not sell is that they are too dependent on the owner. Again, this is one of the vital roles a good coach can help you with. If your company cannot run without you, you don’t really own an asset that you can sell, you simply own a job. You might be able to sell your customer list or some physical assets you own, but most business owners can create so much more value in their business by planning for business continuation.
Things to consider here include:
- Your accountability structure (e.g. your organizational chart & duties)
- Your management team
- Your systems and processes (including their documentation)
- Your internal training programs and continuous improvement programs
- Professional development programs and paths for your company leaders
- Your strategic growth plan for the future of the business
This is just an overview of the 3 critical components. If you want more information or help with creating this plan, please contact us. This is what we do as a coaching firm and we would be delighted to help you create a plan to maximize your asset!