Most small business owners don’t spend a lot of time thinking about what would happen if they became unable to run their business, but even if you think you are a long way from retirement, there are many important reasons to have an exit plan in place.
How much time do you spend thinking about business exit planning?
If you’re like many of the small business owners we meet – not much.
That’s okay as long as you don’t care about supporting yourself and your family when you retire or leave the business, and if you are not attached to what happens to the business, your employees and your customers after you leave. But in truth, the business professionals and small business owners we meet do care.
They care a lot – they just haven’t done much about it yet.
Unfortunately, many business owners believe that their business will just dissolve when they exit, and don’t believe or understand that their business could have value for sale.
Two Reasons Your Business Can Have Value After You Leave the Business
1. If you setup your business so it can be sold at a later date, then your company can help grow the acquirer’s business by allowing them to add a new service or product line to their business or by enhancing an existing service/product line through the addition of your company.
2. If you are a thought leader in your industry and if the business does not rely on you for operations – then your business has value as your competition will want to remove you as a competitor!
Now, I know what you are thinking… ‘But, I’m not ready to sell my business. Why do I have to think about exit planning for my business now?’
Here’s Why Exit Planning Is Critical For Your Business Now – And Why You Should Not Delay Thinking About Exit Strategies…
An exit plan better prepares you (the business owner) for the inevitable transition of your business – whether it’s expected (intended), unexpected or the result of undesirable circumstances that can and do arise.
Most business owners we talk to understand the voluntary exit (even if they are not currently planning for it). And they also understand and fear an involuntary exit. What is less discussed, but a looming reality like the proverbial albatross around your neck, is the unexpected exit.
An unexpected exit may be triggered by a biological event such as:
- You die
- You become ill or disabled
- You’re too old to effectively run the business
Due to the sensitivity of the topic, many small business owners and business professionals simply avoid the biological aspects in their exit planning. As a result, they are left to deal with the muddle of unknowns amid the highly emotional and sometimes financial losses of an owner.
Now That You Know Why You Need to Have An Exit Plan in Place – Here Are Your Next Steps…
Regardless of whether the exit event is planned (the sale of the company, leadership succession of an employee or family member) or not (a biological event), at some point there will be an inevitable transition.
So we ask again, how much time have you spent thinking about and formulating an exit plan that considers not only the planned exit options, but also the unplanned exit possibilities?
To start thinking about it, we suggest you start with one key question:
Can your business continue if you could no longer run it tomorrow?
If the answer is yes, then you are well prepared for a sale or for a biological event. If your answer is no because the business relies either solely or primarily on you for sales and key operational activities, you are not a very attractive acquisition target. And should a biological event occur, sustaining the business will be a serious challenge.
Clearly, we recommend that regardless of where you are in your business life cycle (start-up, or nearing the end of your tenure with the business), you should be working with a business consultant to create your business exit plan.
While formulating an exit plan will require some ‘frontloading’ in time, the benefits of your effort will payoff by:
- Allowing you to control and better manage the exit
- Helping you to maximize company value
- Minimizing tax implications
- Establishing multiple exit options which mitigate unknowns and negative unexpected circumstances (i.e. serious injury/disability, death, divorce, disagreement/owner deadlock, etc.)
- Better enabling you to achieve business and personal goals
- Reducing stress and anxiety due to prior planning and defined expectations
- Insuring business continuity
Now, start planning your exit strategy!
Tony Kubica and Sara LaForest are management consultants with more than 50+ years of combined experience in helping entrepreneurs, small businesses and organizations improve their business performance.