Preparing your business exit plan
As a business owner, whether or not you are thinking about exiting your business, we encourage you to start planning for an exit as early in your business Life Cycle as possible – preferably during the startup phase, but if not then, begin it now.
Business owners who do create business exit plans report less stress and anxiety as their exit approaches, and generally wish they had begun planning earlier. They are also more likely to obtain a profitable sale for the business, and a strong sustainable business for the new owner. Unfortunately while 80% of business owners agree they need and understand the importance of an exit plan, only 17% have created a written exit plan.
The reasons why owners say they do not plan an orderly exit from their business are generally cited as: “I’ll act when I’m ready”, “Don’t know what to do”, and “I’m too busy”.
However, by not planning, or delaying your plan until you are ready to exit, you run the risk of running out of the energy, drive and effort required to achieve success. This will cost you dearly if you wish to achieve a profitable sale and realise your exit goals.
Let’s take a look at three of the most effective actions you can take to start preparing your business for exit.
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1. Begin with the ‘End in Mind’
Think about your desired end state, both for the business and for yourself. Set exit goals by asking yourself the following questions:
- Financial security.
What amount of cash do I need to support the lifestyle I desire?
- Departure date.
When do I want to leave the business? And what does “leave” mean – do I see myself in the business after I leave?
Who do I want to sell/transfer my business to? Family? Co-owner? Key Employee(s)? Outside Third Party?
What is my vision for my company without me? And what is my vision for me without my company?
Once you have clarified your ‘End in Mind’ it is time to quantify your business and financial resources.
2. Quantify Your Business and Financial Resources
Quantifying your existing business and financial resources is an essential next step to take if you are to know how close you are to attaining your exit goals, how far you have to go, and how long it might be before you achieve them. This gap analysis is critical to ensure that you do not arrive at your exit point with a shortfall in what you wish to achieve.
Ask yourself these five questions:
- Is the financial security goal I have set accurate or unrealistically high/low?
- What is the value of my business today?
- What are the resources I have currently available to achieve my financial security goal? (these will consist of net proceeds if you sold the business today and the personal financial assets you have)
- Is there a shortfall (or Asset Gap) between the resources I have and those I’ll need to achieve my financial security goal?
- What must I do to close my Asset Gap?
As a result of completing this Gap Analysis you will know the size of the gap that you must fill before you can exit successfully. And by knowing there is a gap it will likely motivate you to increase the value of your business and cash flow sooner and more forcefully than if you were unaware of the work you need to do. Conversely, learning there is little or no gap between where you are and where you want to will enable you to turn your attention to other exit planning actions you need to take.
In quantifying your business and financial resources your focus should be on achieving accuracy and identifying what to do to close any asset gap. In order to facilitate this focus it is highly recommended that you assemble a team of advisors.
3. Assemble a Team of Advisors
In order not to fall prey to wishful thinking you will require the support of a team of advisors to help you objectively and accurately assess and challenge the assumptions you make in quantifying your business and financial resources.
It is true that advisors are not cheap and it is understandable that you may be reluctant to spend money on tasks not directly related to producing revenue for the company. However, you need to balance this reluctance by considering what it will cost to base the biggest transaction of your life on inaccurate assumptions, and what will it cost to run out of money in your retirement and have to return to the workforce.
So at least be open to weighing the cost of professional help against the cost of proceeding with guesses about, the value of your business, the cost of your financial security, cash flow, investment returns, tax consequences, and the rate at which you can expect the value of your company to grow.
Think of the advisory team as a team of experts working together to help you build a strong executable exit plan/roadmap and help you realise exit goals. Your business exit planning advisory team should consist of several (but not always all) of the following specialists: Finance, Legal, Business Valuation and Business Performance advisors.
Your task is to define who you need on your advisory team and who will lead and coordinate the actions of the team.
It is never too early to start thinking about your business exit plan. A planned exit will always be preferable to one that is forced on you by circumstances. Planning will help you achieve a profitable sale and realise your exit goals. It is the best way to safeguard the health of your business and convert your life’s work into cash.
Begin the process by asking yourself “What are my exit goals?”. To answer this you have to dedicate time to think about you financial needs, departure date, who you want to sell/transfer the business to, and vision for your company when you leave.
Next you will need to compare the financial resources you have with what you need, identify any gap, and devise a plan to close the gap.
To do this with any degree of accuracy you will need expert help. An advisory team to work collaboratively with you to build a strong and executable business exit plan.
Creating a business exit plan is where you start to see the ‘purpose’ of your business – seek out expertise from experienced and seasoned professionals who can help you maximise the value and remove the risks.
Straight talking on creating a business exit plan from Yorkshire Powerhouse
Now you’ve read our article about your business exit plan – have you any questions?
Here at Yorkshire Powerhouse, we’re happy to help as much as possible – is there anything else we can do to help you, do you have any further questions or can we help introduce you to an expert – please let us know:
When exit planning from your business, the core considerations include how much, when to exit, what mechanism to use and who will buy the business Read >