You have spent the last several years building your legacy and pouring your heart and soul into your business. So, what happens when it is time to retire? How do you create a plan so that when you leave your business you also leave the legacy that you worked so hard to create?
In the famous book written by Robert Gerber, The E-Myth, the author advocates for entrepreneurs to plan their exit strategy at the time they enter or start their business. This concept should be an important part of every initial business plan. Unfortunately, the great majority of business owners focus on the startup of their business and do not address the exit plan. A plan for eventually leaving or selling the business is a critical consideration. It creates a pathway for your business with each decision guided by the final goal.
Having a planned final goal provides a sense of safety and peace of mind to what is inherently a risky proposition.
Importance of an Exit Strategy Plan.
Planning for retirement and creating an exit plan is one of the most significant financial events of your life. Everyone deserves to be financially rewarded for their hard work, risk, blood, sweat (equity) and tears that they put into their business, and the 3rd Level Consulting Team is here to help make that a reality. That reward can be expected to be a result of a well-planned and well-executed exit strategy. The exit plan assures that you, as the owner, focus on the future goals and not get caught up in running day-to-day operations.
As an owner, months and years can fly by and you can find yourself ready to retire or simply burned-out without a plan to exit. The majority of owners have not addressed or planned for exiting their business. If you are starting a business, address this part of your business plan now. If you currently are in business, it is not too late but you must put this at the top of your “To Do” list. If you are late getting into the “exit/succession planning game”, having an expert as a guide is even more critical than ever to make achieving your goals a reality. Click HERE to set up a free call with one of our experts. Defining your exit strategy enhances the value of your business in the event of a sale.
An exit plan provides a timeline, outlines the steps to success and defines your personal business goals.
You owe it to yourself and family to be prepared.
What does an exit strategy involve?
Planning an effective exit strategy will be different for every business. A properly designed strategy includes a customized plan that accounts for the individual company’s unique circumstances, market and industry conditions, trends, and your goals and time frame.
Every exit strategy must incorporate an appropriate combination of the following elements, with minor variations for unique circumstances.
- Goals: Ask yourself two simple but challenging questions
Why are you going into or are you in business?
The answers will vary for each owner. It may be job security, flexible hours, increased earning power, creating jobs or following your passion.
What is your end game?
You may be looking for an on-going income stream or to build the business value so you can retire upon the exit or sale of your business. Exactly, how much money do you need the business to generate for your income or retirement needs?
If you want freedom or flexible hours, can you eventually structure the business to run without your day-to day involvement? While these may seem to be basic questions, they are intended to really get to the core of planning and realizing your exit strategy.
Do you expect to see the business continue indefinitely after you leave, or are you comfortable with seeing it dissolve? This important factor will help determine if the business is to be sold, merged with another business, set up for transition through succession planning or simply liquidated.
- Success Steps
Just as you may have a daily checklist, long term goals are a critical factor to chart your progress over time. To successfully navigate an exit plan, you need goals or measurable steps. These steps provide a blueprint for decision making and success. Some basic examples of early initial steps would be creating a staff policy manual, job descriptions and operations manuals. A more organized business is easier to run (and move valuable). If you’re not sure where to start, our team at 3rd Level is here for you and ready to help. Click HERE to set up an appointment.
While you may not hit every target you set, you can measure progress and make adjustments to your plan as needed. If you don’t know where you’re going, you’ll never know when you get there. An exit strategy helps define success and provides a timetable for charting your progress.
With no planned end game, it’s easy for business owners to get caught up working “in” the business instead of working “on” the business. An exit strategy keeps that end game in view and can make day-to-day decisions more strategic in nature.
- Time frame
When do you want or need to exit the business? Good planning often means taking yourself out of the day-to-day operations and keeping an eye on the big picture. Planning as far ahead as possible for the sale of the business or your retirement, avoids the pressure of “needing to sell”. If your time frame is flexible, you will be in a much better position to maximize the profit on a sale. If the sale ends up being a need versus a want, this also preserves the business value if the unexpected happens.
Selling when the business is growing, the economy is doing well and you are ready to move on to the next adventure in life is ideal. However, life does not always cooperate. Sometimes unexpected events occur, such as; a sudden death, divorce, a major health problem, or a required relocation. Any unplanned life event can cause an unexpected early departure from the business. If an exit strategy is already in place, a business owner or estate can more quickly and efficiently move forward without losing tremendous value.
- Business Value
Do you know the value of your business? Most owners only get a business valuation when they are ready to sell. Valuing your business provides you with the current value of your business.
Having a valuation of your business done regularly provides needed feedback on how you are progressing toward your financial goals, your net worth and, how you can increase the value in the future. “What if” scenarios can help predict the future value of your business.
- Personal Financial Plan & Personal Exit Strategy
A critical component of your business exit strategy is your personal financial plan and personal exit strategy.
Some key questions to ask yourself and/or your financial advisor(s) regarding the potential value and sale of your business are:
- How does selling increase our personal financial resources?
- With the proceeds from the sale make enough difference to allow you to “semi”-retire or retire?
- Will you need to find full or part-time employment or consider starting another business to generate income?
As always having a team in place to help look at all angles is best. An example of your financial team would be a consultant or business broker (like 3rd Level Consulting), Insurance Agent, Accountant, Attorney and Financial Advisor. As an example, your Accountant may provide valuable information on tax implications that your Financial Advisor may not be aware.
- Exit Options
Know your options and how they match your exit goals. Have you met your financial goals and simply want to close the business? Are you interested in your legacy and want to sell to employees? Is a tax-free sale right for you? Yes, we said tax-free. Interested in learning more? Click HERE for more info. Today there are many ways to exit your business. As mentioned above, each member of your team is critical to successfully exiting your business on your terms. A team provides a solid framework for the entire business lifecycle, which provides both practical and strategic advantages.
- What’s next?
Many owners fail to plan for “after” they sell their business. What will you do when there is no longer a business to run? Will you take proceeds from a sale of the business to fund another venture or retirement? If you are retiring, what does that look like? A well-thought-out exit plan must address all of these elements as specifically and concretely as possible. Otherwise, it becomes nothing more than a vague wish list rather than a vital part of the business plan.
If you’re currently considering buying a business or if you are preparing your business for sale, it’s vital to consider your exit strategy and get the help you need to ensure it incorporates everything you want to get out of your professional career and personal life. Here at 3rd Level, we are here to help make your dreams a reality. I’m ready to take the next step!