No Matter Where You Are in Your Growth Plan, You Need an Exit Plan; 9 Critical Considerations to Help You Create Yours.
Most every entrepreneur or small business owner has a plan for growth, but few have a plan for how they reap the rewards of that growth at some future point. Perseverance is a major factor in most entrepreneurial success, but keeping your head down and continuing to move ahead is not necessarily the prescription for realizing long-term returns on that success.
And few entrepreneurs even give it a passing thought. Most begin to consider it either when someone comes to them with an offer, for which they are ill-prepared, or they have a health scare and realize they’ve been on this treadmill for multiple years and had no idea how to get off to stop and smell the roses.
You need to think about it ahead of time.
Even most of your employees have an exit plan. It’s called retirement. How about you? Are you just going to die at your desk?
Too many small business owners think of planning for how you realize the fruits of your labors as almost cheating on your business or your employees. But isn’t your business one of, if not the most significant of your personal assets? And wasn’t one of the primary reasons you got into business to, ultimately, create and monetize the results of that business for you and your family?
Exit planning is as important as business growth devising, maybe even more so, the longer you are in business. Life and finances get more complicated with kids, education expenses, maintaining a lifestyle and healthcare expenses as you age, among some key issues. Here are nine critical considerations to help you better understand how to put that plan together:
Think of exit as a next step, not an ending.This is especially true if you intend to be (or are already) a serial entrepreneur and you expect to do this again. The exit is simply the last step in the growth plan for this business; the time for realizing and leveraging all the hard work you put into it. And the time for moving on to your next adventure.
You know growth.Find an advisor who knows exit. Exiting a business, is not, in any way, and easy task. This may be your “first rodeo,” or perhaps, you’ve sold one or more of previous businesses. In any event, what you know how to do is start and grow businesses. You need an advisor whose principal skill is packaging and selling a business; who’s done it before, maybe hundreds of times. Research and find one that understands your business and your industry. And one that you think can work well with you and your team.
Create a vision and a rationale for your “perfect partner.”What would a “perfect partner” for your exit look like for you and your business? Either before or with your advisor, know who you think your “perfect exit partner” might be, whether a competitor or a strategic partner. Try to create a vision, rationale, and criteria for that “perfect partner” and the kind of company that might be, where you and your business might flourish.
Get your team “in the loop.”This is a tricky one. Who do you bring into your confidence and how do you not upset them by telling them of your plans? This is a straight judgment call. If you have an “inner circle,” whom you trust and rely on in the day-to-day operations, they would be it, whether that’s just one person or several. But they need to know, so there are no surprises, and they become part of the process. Note, that if they have some “skin in the game,” either some equity ownership or a promise of a bonus should a deal go through, you will have their full attention. And know that by the time you have earnest interest, everyone will know.
Make the company attractive to a potential buyer.You advisor should help you a lot here. They will put together an overview of the company describing, history, market penetration, current strategies, etc. But you need to help your advisor. Make sure all your tax and government filings are up-to-date. If you don’t have audited financials, at least have several years prepared by an outside accountant.
What’s your number…and what’s your rationale?Valuation is a very emotionally-charged issue. It is an ego-issue because it validates all your hard work and becomes the “scoreboard” for the business’ success. And it’s where most entrepreneurs get sidetracked or disillusioned in the process. Whatever you do, if you have a number in mind, have a basis for it. Either use your advisor to research comparative deals and valuations or spend the money for an independent assessment (often as much as $15,000). And know that valuation, like beauty, is in the eye of the beholder. All the valuation report will tell you is a relative number, a benchmark value for your business. You may hold to that number, but, in reality, a buyer will pay what THEY think it is worth, not what YOU think it is worth.
Prepare for having massive amounts of time sucked up.The process can consume you and your team with meetings, presentations, and due diligence reports. Keep your eye firmly on the day-to-day business and realize that you will be spending almost as much time on the selling process as you are running the business. Be prepared for it.
A deal isn’t done until it’s done.Not only does a deal “die a thousand deaths,” before it finally lives, but it’s not done until it’s done. I have seen deals fall apart at the closing table. So, some cautionary advice. Always think of the deal in possible terms rather than in real terms. Meaning, don’t spend the money before you have it. No big planned expenditures, no changes in lifestyle. Not only wait until the fat lady sings but make sure she’s done!
Understand your role after the deal and begin planning for your next act.Once a deal is done, the chances are excellent that you will still be around in a role in your company with the new owners. You might stay in the same CEO position, or they might want to promote one of your team or bring in somebody you have to transition into that role. You also may have a financial interest, going forward in the results of your company that is part of your payout. Either way, you will be involved, and you will have to get used to the new role, for a period. At the same time, don’t forget there is an end game and a whole new set of challenges that await you. Start thinking about and planning for those.
Exit planning is something to which entrepreneurs and small business owners do not give enough thought or time, usually until they have to. And then, they are unprepared. Be ready. The exit is the last part of growth. Hopefully, these considerations will help you. Good luck.
"The Entrepreneur's Yoda" knows these things. He's been there. May success be with you!
How have you handled exit planning? Please share your thoughts in your comments. It can help another entrepreneur or small business owner.
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