Why – Exit Strategy
Every business owner WILL exit their business at some point in time. A well-thought-out business strategy includes planning with the end-in-mind; that is, an exit strategy. Your overall strategic plan encompasses setting long term goals and maximizing value so you can reap the benefits of your success.
It’s about knowing your exit options and having control over HOW you exit and maximizing the value realized WHEN you exit. And it’s not just business – it’s personal. Planning for “life after exit” is equally important – from retirement income needs to hobbies and travel plans to wills and estate planning.
Act One: Setting the Stage
Start With The End In Mind
With all the excitement of starting a new venture, business owners are rarely thinking about a plan to exit. After all, they just put the keys in the door. And yet, this is the best time to think about the future, especially when there is more than one owner.
A buy/sell agreement is a good place to start. It sets parameters for establishing value and preserves continuity when an owner wants to exit for any reason. It helps avoid surprises.
Build A Profitable Business Model
A successful (and profitable) business has a clear strategy for success. Customer segments have been identified and the company’s value proposition fulfills a need in the marketplace. Strong customer relationships exist.
There is a sustainable competitive advantage. Revenue streams, cost structure, key activities, key partners, and key resources have been clearly defined.
Capturing key processes that support your business model on paper help ensure the continuation of your business. Identifying areas for improved efficiency can improve the bottom line. Building redundancy ensures that if a process is disrupted, the business will continue to operate. Identifying critical points of failure and establishing contingency plans provides staying power in the event of a disruption.
Business continuity planning is often referenced in discussions about disaster preparedness for events like hurricanes or tornadoes. Documenting processes is equally important for developing an exit strategy as it ensures transferability of the company’s intellectual capital that will exist beyond the exit of the owner.
Act Two: The Plot Thickens
Capture the opportunities available for your company in the next two to five years in a written growth plan. What additional markets could you pursue? What additional products or services could we offer to our existing customers? What segments of your current market offer the most growth potential?
Where are the best margins in your customer base and product set? Have you explored opportunities to export your products or services to international markets? Are there opportunities for strategic alliances or cross marketing agreements?
Every business should have an ongoing succession planning program to ensure the organization’s performance in the event of planned and unexpected personnel needs.
These programs typically include accurate job definitions, performance assessments, talent projections, well defined organization roles, etc. – all in line with the company’s strategic and business plans. Recruiting talent is expensive to do. As with a sports team, replacing performers is critical.
As you embark on the process to exit your business, it is especially important to have management and leadership talent ready to step in. One of the first questions you should ask is, “is adequate management/leadership in place … that is, can I be replaced? In fact, the failure to do this will negatively affect company value. Part of the overall exit plan will be a specific succession plan for management.
It will include a review of your duties and skills. Next the aptitude, experience, and qualifications of current management is reviewed. Then depending on needs, a professional development program is initiated.
Finally, if outside hiring is called for, a recruitment program is included in the exit plan.
Act Three: The Story Is Told
The Next Act – your life after business. What happens after you complete the process of selling your business? Will you regret the fact that you have “exited?”
A survey by Price Waterhouse showed that close to 75% of owners who sold their business regretted the decision to exit. The dominant reason for this attitude involved personal issues. It is a fact that most selling owners don’t have any idea what they will be doing when they walk away from their business. After all, most of them have devoted an entire career (and countless hours of work) to building, and nurturing it.
A small business typically consumes its owner(s) as personal matters often take a back seat to those of the company. If you are a successful entrepreneur and/or small business owner you probably possess common traits and behaviors that have contributed to that success. – Committed, demanding, motivated, action oriented, visionary, controlling, … and others. But a planner in your personal life, not likely.
The obvious conclusion is to incorporate personal planning in your overall master plan that guides your transition from your business. This may not be as easy as it sounds. It requires discipline and the ability to be realistic about your life outside of work.
It requires you to step back and look at your personal likes/dislikes, aspirations, quality relationships, hobbies, and what it will take to live a fulfilling life. You will have more time now. The urgent priorities of operating a business will go away, and the time will be filled with something you choose. So prepare yourself for that time and make wise choices.