Someday the day will come when you will want to exit your company, for better or worse. Disposing of your company can be challenging! If done properly it can create great financial opportunity for you and your family, allowing for other options in life, especially during retirement.
However, if your business exit strategy is not effectively planned, the business, which has given you a comfortable living, may turn out to be worthless. At the very least, you will be liquidating assets to take care of final debts and obligations.
Without a detailed plan you may not maximize the best potential price for your company. Between the highest and the lowest potential value, many elements will decide which side of the ledger you will fall on. Elements such as; a trained middle management group, systems, value drivers, culture of the company, consistent cash flow, profitability, and equity growth, are just a few elements that can lead to an excellent or bad sale.
THE SUBJECT THAT IS RARELY MENTIONED!
Unfortunately, for most business owners, the idea of exiting their business is rarely considered until the time has come. It most cases, the key planning elements of obtaining the best potential value of the business has been lost because there is a lack of time to implement them. Most business owners know that in order to keep their business running profitably, like a well-oiled machine, they have to stay focused on the task at hand, always thinking the future will take care of itself as long as the business is profitable. However, that is not necessarily the case in many situations. Also, when owners started their business, they had a place to go, a paycheck and a position, not ever thinking about the end game until the time comes when the end game is staring them in the face.
In the beginning, when owners are developing their company they have long term goals which include growth, profitability, and good income. However, in the startup phase activities such as; getting the next order, next client, pricing, operations, vendors and an array of other things is their focus. A minute by minute focus, which turns into days, weeks, months and years. All along telling themselves, they need to be working on the business for the future, but the tasks at hand are more important at the time.
A motivator for many business owners is the thought of retiring with financially security. Intentions are high, but actions are not. Unfortunately, by the time of an exit, there is little time to develop the necessary systems to take advantage of the highest potential value of the business.
The worst-case scenario is when there is no exit strategy planned. This is disastrous in most cases. This calamitous situation is compounded by an exit which could be from death, disability, or illness (any sudden removal of the business). Normally, there is no successor, let alone a second in command.
This sets up the scenario where the family steps in to run the business (which they don’t know much about). The family has been accustomed to a nice standard of living and wishes to preserve it. However, most times they have limited participation in the business along with limited relationships with business associates and employees of the company. Before long, customers start to leave, , employees flee for more secure jobs, revenue shrinks and what is left is the assets at auction, only to be gobbled up by the competitors who are well aware of the situation, offering pennies on the dollar for the assets.
This scenario could have been avoided if the owner had the foresight to build an exit strategy into the overall business plan. This strategy obviously had to start years before the exit, as it takes years to develop. Unfortunately, owners don’t know what type of exit they will have, an immediate one, or one which they have the time to put in place by implementing the strategies.
DEVELOPING A GOOD EXIT STRATEGY.
Having a business in which the owner is not the hub, but a spoke, can stand on its own without the owner being involved with the daily routines. It can be profitable and sustain cash flow and is appealing to most purchasers. This may include having a core key-person group running the business. Building a strong management team, enhances the value of your company, and gives owners enormous options when the time comes to exit. Having a well-trained management team creates significant performance potential, new ideas, company energy, and higher potential value.
WELL TRAINED MANAGEMENT TEAM
Having a well-trained management team relieves business owners of responsibility l. They act like “owners” and not employees. The ability for owners to delegate more to this group, creates time for business owners to enjoy other areas of their life along with value.
NEVER GET OFF THE MARK
There are companies, that never get to the point of working on a middle management. The owner just never had the time, or wishes not to give up control
Usually when you see other owners have plenty of time off, that is a good indication that they have key people running the show. The owners have more leisure time, take vacations and don’t feel the stress of running the business. This is the payoff for setting up their key group, delegating, and teaching the group how to think like “owners” and not employees. These key people are paid higher, because they take on more responsibilities, and the business is more profitable. This is also the company that is most appealing to purchasers of companies and commands a higher price for their business compared to the small business that does not have key groups/person and does not have their systems in place for an exit strategy.
owners will exit their business one way or another:
- Ill health
- Outside opportunity
- Outside threat
- Burn out
- Loss of key groups or key people
- Outside Sale: 5% chance
- Inside Sale: 95% of small business look to this type of transfer (50% of them work)
- Passive Ownership; I find this can be the best of both worlds. Owner stays on, but passively. Collects income and is in a mentor role.
Spending the time to develop a key group or key man situation can pay great dividends for the owner. Not only do they have the chance to sell outright to the key person, but they also have the mechanics to be a passive owner, short term, or long term.