Do you need an Exit Plan? If you are an owner of a small business, of course you do. Then why aren’t you doing it?
We know there can be a number of reasons, sometimes used as “excuses.” We also know that at least 75% of all small business owners do not have a written plan for an inevitable certainty – transition of ownership. About two thirds of all privately held businesses are owned by baby boomers. The vast majority of these small business owners want to sell and leave their company within the next ten years. This lack of action can and will significantly impact their financial security.
Here are some of the typical comments we hear from owners as they contemplate their exit (none of which are valid reasons for procrastination):
- “No time! It will take too much time for me to take this on now. Don’t bother me; I’m busy operating the business. I know it should be done and it is important but frankly I am so tied up in the day-to-day decisions that it has not reached the top of my priority list.” – This is a sign that you have not initiated a succession strategy for your functions. This company must be able to operate without you, or it won’t be worth what you expect.
- “I have talked to friends and colleagues who have tried to exit and now regret it.” – That is probably true. Unfortunately it is all too common for an owner to regret his/her transition. However the overwhelming reason for this is the lack of good planning. Do an exit plan!
- “I can’t leave. I don’t want to. This company is my life. I’ll just keep working until I die. I’ll never retire.” – We understand. You have probably worked hard over many years to build the business and it may be very difficult to leave the company. There is natural fear of change and this will be life changing. Know there are options that can keep you involved while you exit. And look at this as not an end, but rather the beginning of the rest of your life.
- “The plan is in my head. No problem. My child will take over the business when I decide to leave. Or, the company will sell easily to a competitor with a strategic fit, or if not, an investor will see the potential payback.” – OK, you have a crystal ball. It’s nice to be positive, but wise to be realistic. a) Are you sure your child wants to take over, and is capable of it? b) How can you guarantee that the fit will be there down the road, c) You can’t predict the economy and a buyers’ or sellers’ market. Get busy; document your plan; find out the facts.
- “When it is time, a buyer will contact me and make me an offer I can’t refuse.” – Not so fast. This is a risky assumption. Timing is critical. A number of factors come into play – the economy, your industry, your health, family, employee issues, your competition, the buyer’s readiness and many more. Plan ahead and you can control the timing for the sale of your business.
- “It’s too complicated. I am confused. I don’t understand what is involved and I am getting conflicting information about how to go about my exit. Why can’t it be simple?” – It’s easy to be confused when you are getting advice from a variety of expert sources that look at exiting from their particular point of view. In simple terms, exit planning is part of good business strategy (planning). You run a business that is complicated … you can do an exit plan.
- “The value of my company is not as high as I would like it to be. I need the income that the business provides and I don’t have confidence that selling will bring the net proceeds to fill my financial requirement for retirement.” – First, are your calculations correct? Make sure the current market valuation is accurate. Use an experienced appraiser. Also is the estimate of your needs realistic? Then, if you are short of your expectations a value enhancement project is in order as the key step to your exit.
- “I’ll need help. Who do I call?” – Yes you do. You will need support from an experienced team. A number of disciplines are involved, such as: legal, valuation, financial, estate planning. The Exit Stage Left staff at the FSBDC has referrals that can assist.
- “It is too expensive to hire the people that I need for assistance.” – True, there is a cost associated with good planning. However, do the research. Make sure you understand the cost/benefit equation. The benefits can be extremely significant. Then you can make the choice.
- “Admittedly, I have no other interests. What would I do? I have no idea what to do other than work – I love it. I am respected here. I’m the boss. It bolsters my ego.” – You do have other interests, and you will be doing some serious thinking about the rest of your life. First we need to prepare your business so you have viable options. This will go a long way to reducing your fear of stepping out of your comfort zone.
- “After the transaction the new owner will want me to work for an extended period of time” – Not necessarily. It depends, among other things, upon the exit strategy you select, the terms of sale, if you choose a phased exit and if the buyer requires your expertise.
- “Confidentiality is important to me. I am afraid to start the exit process because I would have to share my intentions and company information with others. That information may affect my relationship with customers, vendors, employees, family members, etc.” – A common mindset but overrated. You do own particular information about your company that is sensitive. But it does not need to be shared until the proper time. However, consider that a) if you are a baby boomer, those around you already know you should be looking to exit, and b) being somewhat transparent with your key people can give them confidence you are planning properly.
- “What’s the use? It will be time consuming, confusing, expensive, and what do I gain?” – With a good Exit Plan you gain a lot. It will have huge positive impacts on your future! … Financial security for you and your family, peace of mind, and legacy to name a few. Without a plan, the risks are high that your retirement will not be what you expect.
Perhaps some of the above reflects your thinking about preparing for an ownership transition. If it does, don’t allow it to stop you from beginning a process that will have a critical impact on the future for you and your family – an Exit Plan!
By Jay Simecek, Exit Stage Left Trusted Advisor