by Jim Martin
Some entrepreneurs go into business with the intent to build, sell, and move on. Others spend decades building and running their businesses. Regardless of your intention, you need to have a strategic exit plan. Here are five reasons why one is essential:
Everyone Will Exit Their Business. The only variable is whether the exit is planned or unplanned. Even if the thought of selling it seems inconceivable, you will not run your business forever. At some point, every business owner steps down. This can be due to retirement, turning control over to one’s children, selling it, or health issues that limit your ability to run the business. Your transition will be as good or as bad as your plans for it.
Goals Are Best Achieved on Purpose. Most people have a hard time achieving a goal without a plan. An exit strategy is just a road map to your personal goals for the business. Entrepreneurs do, and should have, several different long-term goals for their businesses. Common business goals revolve around such personal objectives as using the sale of the business to fund retirement, having the business provide for future generations, traveling, enjoying more time with family, or reducing stress and focusing on healthy living. Strategic exit plans allow you to maximize the value of your business. This is a key element to achieving your goals, but it doesn’t happen overnight. Without a road map, too many business owners miss the opportunity to achieve their goals.
Exiting at the Right Time. Business owners often want to exit immediately because of circumstances that arise. The shortest exits are typically due to failing health. When life circumstances dictate an unprepared exit, it rarely goes smoothly. That you are ready to exit your business doesn’t mean the business is ready. Systems need to be set up so the business runs without you. Value drivers need to be established to achieve your best selling price. The business must be in good financial health. Exiting your business for the right reasons and at the right time requires planning.
A Plan Doesn’t Require an Immediate Exit. Having a strategy doesn’t mean you have to exit today. It just means that you know what your exit will look like. Design your business with your end goals in mind. Your 1-3-5-year business plans should always be measured against the eventual exit plan. That way you are prepared should you decide to exit.
Your Business Is Your Largest Asset. Because a business is usually a major element in an estate, it’s not uncommon for business owners to count on the sale of the business to fund their retirement. However, the sale price is seldom the same as the business value. Business values are established for many different reasons, such as insurance. This isn’t to say that the mathematical value of the business is wrong—most likely it is accurate. The problem is you cannot sell your business in the marketplace for that price. Many complex factors affect a business sale price. For example, how involved is the owner? If the owner is integral to the success of the business, someone buying the business will essentially be buying a job. On the other hand, if the business runs itself independent of the owner, that business will be more valuable to a buyer. Business owners should have a strong understanding of what the market value of their business is. That way, they can take strategic measures to increase the market value if necessary.
It’s never too early to outline your long-term goals for your business. A strategic exit plan gives you the tools to build a comprehensive road map for your business. As a business owner, you can never be too prepared to achieve your goals. Your SCORE mentor can be a valuable aid in helping you prepare.