Exit Planning Needs to Begin Way Before You Plan to Exit
As a business owner, exit planning should play a critical role in your strategic planning almost from the onset of your business. Many new business owners spend the preponderance of their time focused on launching and growing their companies, and rightfully so. But having at least a general idea of how you want to exit, even before you hang your shingle, will better prepare you for long-term success, sustainability, and the best valuations when the time comes to sell.
How unprepared for exit are many business owners and why does it matter? Let’s take a look at some unsettling statistics:
A recent survey from Sunbelt Network reported 57%-67% business owners with companies valued between $500,000 and $5 million had no exit strategy in place.
According to SC&H Group, most business owners have 80-90% of their wealth tied up in their company, while less than 30% of businesses that go to market will sell.
Industry experts warn last minute exit planning can lead to fire-sale scenarios and lower-than-expected offers. Studies indicate business owners who don’t plan properly can lose as much as 20-50% of their potential value due to rushed sales. (Sunbelt)
Why So Many Business Owners Wait Too Long to Plan Their Exit
Business owners have a lot on their plates. They are almost perpetually locked in a time crunch, consumed by the day-to-day activities of running and growing their companies. The smaller the business, the more hats these owners are forced to wear. Who has time for exit planning when they are spending 60-80 hours a week just trying to reach the next level?
Another reason many business owners hold off on planning their exit, particularly lately, is due to uncertainty in the economy. But delaying planning due to market concerns is misguided at best. Imagine the owner who held off on starting their exit strategy until February 2020, expecting a sale within the ensuing year. Had that same owner been exit planning far in advance, their options would have been exponentially greater.
Nobody is claiming you need to have a comprehensive exit plan before you ever land your first customer, but waiting too long can lead to a decrease in business value, limited buyers, and hasty decision-making.
It’s Never Too Early to Start Planning Your Exit
Even if you don’t anticipate selling your business for many years to come, the ideal time to start exit planning is as soon as you launch your business or at least when your company begins to thrive. Early and comprehensive planning allows greater options and flexibility, maximizes valuation when time to sell, and provides the opportunity to identify and remedy operational and financial deficiencies when you can actually do something about them.
The longer the lead time, the better positioned you will be to smoothly transition out of your business when the opportunity presents itself. Even if you have no clear timeline, having an exit plan ensures that important decisions are made and actions taken that ultimately align with your goals for yourself and the business.
Click here to read “Are You Ready for Your Exit? Creating an Exit Strategy.”
5 Quick Tips for Planning Your Exit
1. Define Your Exit Goals: Be clear on your vision. Selling to a third party, handing the business down to a family member, or staying on as an advisor after selling are all options on the table.
2. Determine Valuation Early and Often: Evaluating and understanding the market value of your business on a regular basis can help you make informed long-term decisions.
3. Build a Strong Leadership Team: Knowing you have the right people in the right leadership roles now makes identifying potential successors who align with your business goals much easier. Consider a comprehensive leadership development and alignment program.
4. Get Your Books in Order: Settle any outstanding financial or legal issues, make sure that your books are always clean and balanced, and implement administrative efficiencies.
5. Seek Support: Acquire the advice and insight you need from a business coach, peer advisory board, financial advisor, business broker, or an exit planning expert to help you build a well-executed exit strategy.
Remember, while selling your company might be the final step in your business ownership journey, it is best to begin strategizing your exit well before you ever plan to wave goodbye.