“Always start at the end before you begin. Professional investors always have an exit strategy before they invest. Knowing your exit strategy is an important investment fundamental.” – Rich Dad
At some point in time every entrepreneur thinks about life after the business and how they can realize a timely exit with sufficient wealth to maintain their desired lifestyle. Planning for this transition requires solutions customized to the needs of each business. However, five key rules seem to consistently apply to successful exits. I emphasize that following these guidelines alone will not be sufficient to achieve your best case scenario due to the complexity of any practical solution. However, ignoring any of these rules will result in your ultimate regret.
If you feel nonchalant or conflicted in addressing this challenge, you are not alone. The American Family Business Survey reported in October of 2007 that:
40.3 % of business owners expected to retire within 10 years
Of those planning to retire in < 5 years; fewer than 50% had a succession plan
Of those planning to retire in > 5 years; fewer than 33% had a succession plan
One third had no plan to retire
Now let’s face it, you will leave your business at some point. So it’s up to you to set the stage to do it on your own terms and in a way that works best for those that mean the most you. Hopefully, these rules will help motivate you to:
How to Plan your Business Exit Strategy and Get out with the Money and No Regret
Rule 1. Plan at least 5 years in advance
Though, I believe you can never start too soon. Doing a good job of planning your exit will take time and preparation if you hope to avoid potentially significant undesirable losses of value. If you’re interested in getting what the business could be worth, not just current worth, expect to make more than subtle changes in process, systems or organization.
Rule2. Understand your present financial position
Understand your personal financial plan requirements first and then focus on building a business exit strategy can deliver the necessary results. If multiple owners are involved, they should all be in a position to reference their personal financial plans before engaging in a strategic process that includes exit planning. This will establish fundamental goals and gaps upfront that helps you avoid surprises down the road. I mean surprises that will likely result in messy conflicts, wasted resources and loss of time.
Rule3. Understand the valuation process
Understand the valuation process and your business value drivers. Invest in a valuation that includes benchmarks of recent transaction values for similar companies. It’s essential that the planning process be grounded in reality. False expectations of value will result in a plan that will never motivate the enduring personal commitments needed to be successful.
Rule4. Build a Business designed to grow without you
Build an organization that could be successful without you. Establish a good process, put in place reliable systems and empowered people that will get the job done; and most importantly, instill confidence in your investors so that any potential buyer see your business as one worth investing in. Your trusted relationships will need to be shared and nurtured for sustainability.
Rule5. Plan your exit strategy alongside your team
The exit planning process must be carried out as team project. CPA’s, lawyers, investors, family, key employees, insurance agents, financial advisors, trustees, sometimes even key suppliers and customers, may all have important roles to play during the process; if they are to be depended on for implementation. Getting all the key players on the same page helps you avoid costly mistakes or even a potential disaster. A good exit plan requires a complex process that must hold up under unexpected events, emotional stress and legal scrutiny. Never forget that the quality of any plan is a function of its acceptance as much as its design.
As a final note, being upfront about your exit strategy should not send a message about resignation but of goal oriented business initiative. In fact, it can be a tool to create great energy in an organization when goals and opportunity are shared by the people entrusted to make it happen.
Author’s Bio: Michael J. Sullivan is President of G5O Consulting and a Partner with The Commonwealth Financial Group. Mike has degrees In Industrial Engineering/Operations Research (UMass Amherst) and Manufacturing Engineering (Boston University) plus 30 years of leadership experience helping companies of all sizes achieve strategic goals. His consulting practice specializes in helping closely held businesses implement a strategic process that includes structured exit plans. Contact Mike at firstname.lastname@example.org