When you started your business, were you thinking about your exit strategy, or who was going to take things over? Or were you just thinking “Can I even make this thing work so I’m generating enough income to pay my bills?”
Fast forward ten years – you’ve created a successful company! You’re making more money than you ever imagined, and you have employees and clients who depend on you for their future. Your business has likely grown to a point where it represents 80% – 90% of your net worth. You’re also begin to realize that you’re not invincible. There can be events which will disrupt your normal operations, and you need a plan in place in case you experience one of the 5 D’s:
- Disagreement with your partner
If you’re like most successful business owners, you’ve spent years working in your business and not thinking about how to exit or retire from the business. What are the things you need to do to be able to extract that wealth and repurpose it into retirement income?
Did you know:
- 49% of today’s business owners have NO transition plan
- 70% of businesses that are put on the market do not sell
- 30% of family-owned businesses transition to the second generation and only 12% survive to the third
Source: © Exit Planning Institute
What’s the difference between an Exit Strategy and a Succession Plan?
Exit planning is the process you go through to successfully enter your “Next Stage of Life” – whatever that means for you. A successful exit strategy has three main components:
- It maximizes transferrable business value
- Ensures the business owner is financially prepared to exit
- Establishes there is a plan for “What’s Next”
A succession plan ensures your business succeeds and thrives as you pass it along to the next group/generation of owners. It’s creating a process to make sure the transition is orderly, communicated well and has a time frame for execution.
As a business owner, you need to work on both of these plans.
First things first. You need to ask yourself these questions.
Before you start spending your time and money on planning, it’s important to answer some questions about your business. And be honest with yourself.
- Can your business operate without you? Or are YOU the business? If you are the business, is there anything in the business another owner would want to buy? Think of things you could develop into value, i.e., processes, client databases, marketing techniques you use, vendor relationships?
- Do you want to be able to turn an intangible business into a tangible asset someone will want to buy or own?
- Do you have family members or employees who will or could take over your business? Are there potential candidates who could be developed over time?
If you answered yes to any of the questions above, you need to start thinking about Exit Planning and Succession Planning strategies NOW. It’s important to start this type of planning 3-5 years before you’re ready to sell or transition. It can take several years to get your business to a level that will allow you to command a higher sales price.
Get to the point where every 90 days, you’re able and ready to make the decision to continue to grow or sell/transition your business. This puts you in a position where the 5 Ds can’t force you into selling/transitioning your business for a much lower value because you were caught off guard.
For further information, please don’t hesitate to contact us for a consultation. Learn more on our complimentary webinar by clicking here.