A business can last forever. You won’t, however, so as an owner you may want to consider building an exit plan—a way you can, with minimum hassle, transition your business to the next generation of owners.
Only about 15 percent of owners actually have a plan. The others have stalled the process, or completely ignored it, because they’re too busy running what they have built, or have too little trust in possible successors, or worry about confidentiality or selling and losing key employees.
“It’s no different from someone who refuses to buy his own burial plot,” says James Nalley, vice president at BCC Advisers in Des Moines. Whatever the reason, they need to set that trepidation aside at some point if they wish for there to be an orderly transition of power and ownership.
Crafting an exit plan is a fairly involved process, says Nalley, who has helped to build them as a certified exit planner as designated by the Exit Planning Institute. It will involve a team – trusted financial advisers, value enhancement experts, lawyers, accountants, even some life planning advisers.
Identify your goals. Do you want to eventually sell to the highest bidder? Sell to your management team? Sell to a private equity group, or a competitor? They may not have the same goals as you. Or they may even shut down your production line and roll it into theirs.
These are all factors to consider now. They are not factors to be considered in a rush, when you’ve taken ill, perhaps, and find you can no longer devote your full energies to the business.
“We’d like to be involved three to five years ahead of your exit,” Nalley says of the timeline. Once you set it, you should regularly revisit the plan as time goes by.
Drafting an exit plan has an added benefit of presenting you with a rounded picture of what your business is—and should be. You will discover who your key employees are, what compensation is needed to retain them, where competitors are advancing or falling behind you, what markets you serve best and which can be better exploited. Nalley says it also will prompt you to look at your philanthropic interests, and your legacy, and even what hobbies you might take up once that exit has occurred.
In short, an exit plan is your guidebook to stage two of both your business and your life.