All businesses experience a change in leadership or ownership. All small business realizes this reality at least once. Whether your transfer or sell your business you will inevitably exit it. To exit your business in a way that is most favorable to you will involve more than you and you need a Business Exit Plan to make that change successful. It will take multiple parties, different providers, to give you and your business the best outcome from your inevitable exit. So what should you do and who should you involve? Further, when is the best time to start the exit process? When should you have an Exit Plan?
Research has shown that well-developed business exit plans increase the value of the business by up to 50%. That means more money in your pocket regardless of the strategy you choose. In that most business owners see their business as a form of retirement planning, this increase in value means an easier retirement. A retirement where you can enjoy life and do the things you have always wanted to.
Research has shown that well-developed business exit plans increase the value of the business by up to 50%.
When should you start planning for your inevitable exit from the business; most experts agree that this should begin the day you start your business. Reality says very few of us do this. The answer then becomes as soon as possible but years before the actual exit. This is not something you can do in a month, a few months or a year. The longer you plan, the more money you make and the smoother your exit.
A Good Business Exit Plan
So what does a good business exit plan include? Several things make up the content of an exit plan, and you should include all of these in your plan, and at a minimum, you should include these:
- Increasing/Maximizing the growth and profitability of your business
- Legal preparation of the transition of your business to family, shareholders or other parties
- Preparation for unforeseen events such as death, disability or long-term hospitalization
- Review of any tax implications the exit will cause you.
What should you do today to prepare for a smooth exit from your business under normal situations? If a tragedy happens, what are some tips you should begin to put in place today to ensure your business goes on? What should you exit plan contain and focus on?
- Treat your exit plan like you would your Will. Have your Attorney assist you. Identify successors and other important decisions for your business.
- Develop an action plan to maximize your business value and profitability. You may need to have a Business Consultant or Advisor help you with this. Ensure your business exit plan considers the current state of your industry.
- Ensure your exit plan is aligned with your personal financial goals.
- Establish goals or objectives that help you meet your future needs.
- Establish a strategic and operational plan for your business to continue to operate in your absence due to unforeseen events.
- Monitor and act on your plan.
- Don’t be part of the 85%.
What is the 85%
It is estimated that 85% of business owners never develop an exit strategy. This failure creates significant stress and lowers the end value of the business creating a loss of wealth and value for all. The primary reasons why business owners fail to plan are:
- Some cannot let go
- To busy working in the business instead of on it
- Can’t decide who should one day take over the business
- Inability to accept change
- Ego – they can’t bring themselves to seek the appropriate advice.
Exit planning is a critical part of your business operations. Failure to plan can create a loss of business value, a loss of personal wealth and create significant stress for you and your family. No matter the reason your exiting your business is an inevitable action. Being prepared will make that inevitability less stressfull for all concerned.