Every entrepreneur eventually moves on. Many retire. Others turn their attention a new venture. Even those with no intention of leaving their business may change their mind or face health issues. Exit planning is a cross-disciplinary process that puts owners in control, enabling them to envision and begin their next chapter on their own terms.
Exit planning makes explicit an owner’s goals, then lays out a strategy for achieving them. What financial resources will they need to support their desired lifestyle? Will they sell the firm? Entrust it to family members or colleagues? What will be their legacy to loved ones, employees and the community?
Owners without an exit strategy often face disappointment when they learn there’s a gap between their financial expectations and what the market will pay for the business they’ve toiled to build. At that point, they must choose between working longer than anticipated or settling for less.
Exit planning avoids that dilemma by identifying value shortfalls early, enabling management to take the structural, operational or personnel steps needed to grow the company to its desired level. But it takes time.
Essentially, the business must be readied to flourish without the current owner, and the many decisions involved should not be rushed. Are the processes and management talent in place to replace the founder’s guiding hand? It can take five years or longer to reorganize, reengineer and coach key managers. At the same time, it takes planning to prevent taxes and other transfer risks from eating away at eventual gains. It can take years to incrementally and tax efficiently transfer business assets to children or a new management team. Even the process of selling to an outsider can take 12 months or more. And that assumes that qualified buyers can be readily identified, that industry and M&A market circumstances are favorable, and that the economy is stable.
Exit planning is a highly individualized exercise, demanding a wide range of skills tailored to the owner’s objectives. Depending on the situation, I may build a team of advisors that includes a business appraiser, CPA, business and estate planning attorneys, management consultant, financial planner, investment advisor, insurance professional and business broker.
If you’ve devoted your career to building a business, transferring ownership will probably be the largest, most important transaction you’ve ever undertaken. It will be complicated, with many competing factors to consider. And it will be personal. Don’t short-change yourself. Prepare for it with exit planning.