When is the best time to start your exit planning? When you are ready to sell or retire is too late, but can you start too early? The simple answer is ‘no’.
To quote Stephen Covey, “To begin with the end in mind means to start with a clear understanding of your destination. It means to know where you're going so that you better understand where you are now and so that the steps you take are always in the right direction.”
Anyone who has watched HBO’s TV series ‘Succession’ will know how convoluted and challenging, not to say downright manipulative, even sadistic, succession struggles can be. So what have you done about a succession plan for your business? Who will be taking on the leadership of your company when you step down? Have you taken steps to ensure it doesn’t become a ‘drama’?
One answer may be that you intend leaving the challenge of succession to a future acquirer, however that could be a mistake – here’s why.
In building a business there are many things you put into its development and growth, but when it comes to an exit the focus is almost always on money. And that’s why, for many people, an exit plan is synonymous with an intention to sell – but it doesn’t have to be that way.
When talking about exit planning, we focus on both the business and the owner. We help you prepare your business for its next stage including, but not exclusively, preparation for sale. And we help you, the owner, prepare for your next stage – be that retirement, a new venture or continued ownership, but with less involvement in your business.
There are many reasons for someone running and owning a business. Of the clients we work with the reasons for doing so vary from it being a long-held ambition, the result of redundancy, a bright idea, the challenge of ‘doing it better than the current boss’ and a multitude of other, often personal, reasons.
We use the phrase ‘running and owning’ to emphasise the twin aspects of being an owner manager. Ownership can be passive, although usually not for smaller companies, whilst running a business is very active. Both aspects generate demands and pressures and both create the opportunity for immediate and long-term reward.
If someone wants to buy your business, it's good news isn't it? In principle, yes! But bear in mind the deal isn’t done until the contract is signed. So take a breather and consider what an approach to buy your business actually means – it may be the best thing that could happen or it could be a huge disappointment if a sale doesn’t materialise or your business is worth less than you thought (in short, if the outcome isn’t as you expected it to be).
Selling your business, or your share of your business, is no different to any other sale in that it has both objective and subjective elements. To get the best outcome from your business exit you need to work on both.
A potential acquirer will look both at the facts and the story you tell. Different acquirers will place different amounts of emphasis on each. The prevalent view on business sales and valuations is that it is driven by assets, financial record, risks and potential.
The exit planning process is designed to give you the outcome you want from the sale of your business or your share thereof. Previously we described the first three steps: determining your desired outcome, considering the perspectives of other shareholders and stakeholders and evaluating the current performance of your business.
The fourth part of the process is to ensure you have a plan for the business that results in your desired outcome i.e. the value and conditions of exit you desire at the time you want it.
In the first two phases of exit planning we review what you want to achieve from your exit and consider the needs of other shareholders and stakeholders, who may have different perspectives and timescales to you.
The next step is to assess your business to establish the likelihood of you achieving your desired outcome.
In our previous article we talked about the different types of busines owner and the importance of setting out your desired outcome from a future exit. If your future and that of your family is dependent upon getting the transfer of ownership planned and executed well, setting out your desired outcomes is a key step. If you are the sole owner of your business this is relatively straightforward. However if you are a co-owner you may have a more complex situation to manage.
There are four types of business owner when it comes to how your exit or ownership transition will come about. Which one are you?
If the terms of your exit are important to you then you might consider some help – particularly if you are thinking two to five years ahead.
We have talked to other business owners and they are taken aback that we forecast our revenues, costs and cash flow
We’ve written a number of guides on selected business subjects that will set you and your business in good stead for whatever future you may choose.
These are free for you to download and to make use of in your business, so please help yourself.