Business exit planning might be the farthest thing from your mind. That may be OK if you’re in the planning or building stage, but perhaps you would be surprised to know how far ahead you really need to plan if you want to optimize the sale when and if you ARE ready. In our experience with owners of businesses from $3mm to $20mm in revenue, we recommend an exit planning time horizon of 2-6 years.
Although more extreme, a Forbes article titled What’s in a Good Exit Plan provides a helpful articulation of the importance of planning far ahead. “Most owners who already have Exit Plans still need 3–10 years to implement all of the strategies necessary to exit on their terms. Owners without Exit Plans still need this requisite 3–10 years)to implement an exit strategy, but in addition, they suffer from the time they’ve wasted waiting to create an Exit Plan. In the end, a successful business exit will typically take 3–10 years minimum and much, much longer for those who wait to plan.”
Working on long-range business exit planning can feel overwhelming, but the good news is that the same steps that help you work towards an eventual successful exit also contribute to ongoing business health, growth and financial strength.
Before digging in too far, let’s be sure we’re all talking about the same thing. When your business is privately owned, the lines of business exit planning and succession planning can seem to blur, but in reality, they are very different.
Succession is all about the leadership of your company. Many privately-held businesses are family businesses, and succession is often a family affair. Even if that’s the case and you have no intention of selling your business, business exit planning is still an important safeguard for the value of the company. If you’re keeping it in the family, you want to transfer the maximum value to the next generation. But things don’t always go as planned. People change their minds, the economy takes uncertain turns, and unforeseen events happen every day.
The exit plan is all about ensuring that the value is there for the transfer and/or the sale when the time is right. When we talk about exit planning, there are several forms the sale can take:
It may seem counter-intuitive, but business exit planning can actually protect you from having to sell before your ready or for less than its potential value! That’s because when you’re working strategically toward sale-readiness or transferability, you are really just strengthening your foundation and optimizing return. You are more likely to know what your business is worth at any given time, and your business will be more sustainable in the face of tougher economic times. Business owners who let the business run them can fall into a situation where selling feels like the only option, even if the value is far from what it could be.
The bottom line is that business exit planning is an extension of the overall strategic business plan. If you don’t know where you’re going, it’s very hard to know when you get there. The plan is the roadmap that helps you get there in the right way at the right time, and it is the essential tool to put you in the driver’s seat in control of the journey.
Successful business exit planning does not look the same for every company, but one thing is consistent: The toughest part is getting started. Here are three tips to help business owners over that first big hump:
As noted above, the recommended time horizon for successful business exit planning is 2-6 years. But because of the other benefits of the process, it’s never too early. The time to start is now. That’s how you can ensure that you’ll be ready for the sale, even if the circumstances or opportunity arise earlier than you expect. The caution on timing is that once you embark on the journey toward sellability, or a successful exit, you’re never really finished until the sale takes place. Sustaining the state of readiness once achieved is part of the process.
In order to determine your own time horizon for business exit planning, you first need to know the starting point: what your company is worth. The primary mechanism for this is a business valuation report. The valuation can range from basic to very complex, and should be performed by a trusted third party who specializes in this. It will contain information on where the business stands on all key value drivers, along with changes recommended to increase value.
Once you have the valuation in hand, you will be able to determine what it will take to get the company where it needs to be, as well as the key performance indicators to monitor so you know when you get there. One note of caution though. Nothing is black and white. The options and recommendations are inter-related, so navigation course-corrections and optimization across the business exit planning process takes skillful and nimble management.
That leads us to the third important component of getting started with business exit planning: who can help? You may have heard the term “fixing the plane while flying.” Let’s not forget that business owners have their hands full even before incorporating the efforts related to exit planning. Juggling short, medium and long-term priorities can feel like a heavy burden.
There are entities that can help build out strategic business exit planning, but most of them leave execution to you. It is rare, but possible, to find a more involved level of investment. That’s our niche.
We provide an alternative to selling in the near-term by investing in business owners both financially and through “sweat equity,” helping execute on the strategic and operational initiatives that improve overall business heath, sellability, transferability, and eventual successful business exit.
If you are a $3mm to $20mm B2B business, schedule an introductory assessment discussion to see how sellable your business is.
Communications are informative, private & confidential
