You’re busy. I get it. You’re trying to run and grow your company and juggle a hundred priorities today. You also may have to take the kids to soccer practice, take a parent to the doctor, and squeeze in a date night with your spouse. You probably don’t think you even have time to read this. Exit Planning?? You’ll just call a business broker when you’re ready to retire, right? In case that doesn’t work, you’ll have socked enough away over the years that you can just close it down, right? You don’t have time to plan for 5, 10, 15 years from now. It’ll all work out.
So, you’ve made it past my sarcasm and into the second paragraph. Allow me to make my case “why every business owner needs an Exit Plan.” I’ll start with the 3 primary goals of an Exit Plan. Maximize Value, Minimize Risk, and Maintain Control. Do these goals seem consistent with the way owners should always be running their business? Absolutely!
Take a startup for example. They spend all of their time working on the perfect business plan to raise money. Yes, this is important, but investors want to see your Exit Plan. They want to know that you’re building a valuable, sellable company and have a strategy in place to give them their 10x return in 3-5 years.
Now, consider a 5-10 year old company. Even though a business may be growing and profitable, it may not be valuable or sellable. Often these are “lifestyle” businesses where the business owner is the hub and the business could not possibly operate without him. They often have a couple clients that represent a large percentage of their business and a non-scalable, non-recurring revenue model. The owner may have control, but the business is low value and high risk. If something happens to the owner, the business is done, and the family is left to clean up the mess. Proper exit strategy and planning can change this.
Then you have a more mature company with one or more owners nearing retirement. What they typically do is walk into their CPA or Financial Advisor’s office and say, I’m ready to sell my business. Professional advisors hate to be the one that tells you that your business isn’t worth enough to satisfy your retirement goals. Either it’s too late or you’ll have to spend another 5-10 years working in your business to either increase its value or wait for the market to be more favorable.
There is no reason to leave the end to chance. Studies have shown that almost 80% of business owners want to exit within 10 years. But, 75% have never tried to exit a business. 85% do not have anyone that could replace them. And only 8% have any type of exit plan in writing.
Here’s is the start of your Exit Plan:
First, determine the Universal Objectives:
- How much longer do you want to work in the business?
- What annual after-tax income do you want/need at retirement
- To whom do you want to transfer the company? Family , Co-owner, 3rd party?
So, take the time today to join the 8% and write down the answers to these three questions. Like most of the lessons you’ve learned in life … stop smoking before you have cancer, get life insurance before you die, and use the bathroom before you get on the highway … start Exit Planning before you’re ready to leave your business.
You owe it to yourself, your employees, and your family to start having this conversation with your trusted advisors: your CPA, Financial Advisor, Lawyer, Insurance agent, etc. If you are a professional advisor, you owe it to your clients to initiate this conversation now.
As a business strategist and Exit Planner, I help busy business owners coordinate the multidisciplinary effort of creating an Exit Plan, a roadmap to follow for the next 3-10 years, so they can focus on their business. For more information request our free White Papers about Exit Planning or sign up for our newsletter, The Exit Planning Review.
Only 1% of business owners take the time to read an article on Exit Planning. Congratulations. Welcome to the 1%.