3 Simple Ways to Start an Exit Plan in 2021

Have You Been Thinking About How to Start an Exit Plan?

Business Owners are hesitant to begin exit planning for many reasons.  Sometimes it is simply because they are uncertain over their objectives and a desire to put off something that seems a long way down the road.  They postpone planning because they do not want to commit time and effort to a process that will generate questions over a lot of unknowns. 

We like to have all the answers and planning for a future transition may not have a lot of clarity around it.  It is  not a surprise that 100% clarity is elusive at best. Most owners will never achieve it. So many external forces such as economic, business climate, successor options, techniques, strategies, financing, etc. are continually changing. Not the least of which is the owner’s sentiment or mindset towards how to start an exit plan.

The important thing is to simply begin. Get started – make progress not worrying about perfection. Realizing changes are inevitable, and that having “some” plan is better than having “no” plan!

The following three suggestions are to help owners get started and take a proactive step forward.   Focusing on progress – forcing oneself to rise out of the Weeds of your business to grab that 70K foot view. 

Your Initial Exit Objectives do not need to be cast in stone.

Etched permanently into the holy grail. Nor does it mean that you must leave your business tomorrow. It is simply the opportunity to give yourself the time to do a “gut check” and begin by asking yourself some questions.

What would an ideal transfer look like? Do you envision selling 100% of your business and ride off into the sunset? Do you want to find a partner to inject capital and continue to grow the business? Do you want to involve your family? Would you like to see your key employees take over leadership? Each scenario will take significantly different paths. Do you even know what check size is needed to maintain your desired lifestyle? This will take some math and perhaps input from your financial advisor. Do the exercise of jotting down your monthly expenses and work backward to figure out the minimum amount needed to fund your lifestyle or future goals.

What will you do after you sell? Not having a plan is one of the biggest causes of remorse among business owners who have transitioned out of their business into a new chapter of life.  Have you asked yourself when do you want this all to happen? Establishing the time frame for an exit is important. If transitioning to an outside party, preparing your company takes time. You need to prepare your business to be transferrable – you did not build it overnight so it is safe to assume you cannot transfer it overnight.  One to three years is common to close a deal. And that presumes that all goes well. Internal transitions sometimes require three to possible five years to prepare and make happen. Thinking about all of this can be overwhelming and it is tempting to set it aside and figure “I will do it later”

Communicate with a Trusted Advisor

Sharing your plans and goals with another person is said to increase the likelihood of follow through. Accountability if a great tool. When thinking about your future, it is smart to share your desire to begin planning with one of your trusted business advisors. It may be your lawyer, accountant, business coach, banker, or someone else whose opinion you value. Share your initial ideas, thoughts or objectives with this person. Get their thoughts on how realistic your plan may be. Do they know of any other professionals who can help in the process? Telling a trusted advisor about your exit plan can help provide accountability, clarity, progress measurement and motivation.

One of the biggest benefits of telling someone is that it serves as a sounding board and provides perspective for the owner. Admitting aloud to another person that your journey as a business owner will someday end makes it real. Just like when you began your journey as a Business Owner exit planning really begins when you can dream of all the great things that await you.

Learn the value of your business – what is the number!

Your business is your baby and it is beautiful…to you!  It helps to gain an outside perspective and gaining a valuation literally forms the foundation of the exit planning process. From there you can develop a plan of action for addressing some of the opportunity areas to increase the value. 

 First, like it or not, the level of cash proceeds received from an exit is a significant factor on whether the sale of your business is realistic at this time. You may think you have an idea of the value of your business, but, without review from an outside source, you are only guessing (incorrectly, in most instances). If the level of cash proceeds does not meet your requirements, the direction changes from exit planning to how to increase value.

Start an Exit Plan for 2021!

Establishing your goals, telling a trusted advisor, and getting a valuation are three simple places to start your exit planning for 2021.

No matter what you discover in this process, your business will be stronger, and you will better understand your direction going forward.  And that is simply good business!

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