Did you start or acquire your business with the end in mind? The late Stephen R. Covey was brilliant in the very simple concept of beginning with the end in mind. Regarding this subject, he stated:
“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.”
Preparing an Exit Plan should be at the top of your priority list for next year, if you don’t have one. According to Gardner H. Russell, “Exit Plans may be as varied as each venture’s needs and purposes. In the absence of an Exit Plan, it is probable that an involuntary exit will be enforced by any number of circumstances: loss of market, competition, a better mouse trap, changes in customer acceptance, inept management, catering to wants instead of needs, lack of cost controls, etc.” I talk to many business owners and I often ask the question, “How and when do you plan to exit this business?” It never ceases to amaze me how many people tell me, “I am not sure or it depends.” Let me put that myth to rest immediately. Every business owner WILL leave their business. They may leave it vertically or they may leave it horizontally, but they will leave it.
That being said, it is obvious that exit planning is very critical to business owners, but especially small business owners. Why? Let’s look at some statistics from the Small Business Administration.
• There are approximately 23 million businesses in the US. Of these businesses, 99.7% have fewer than 500 employees. In other words, small business!
• Over 65% of these businesses are family owned or closely held businesses.
• Over 50% of small businesses are owned by individuals over 50 years of age.
The Baby Boomer Tsunami is coming!! – There will be more businesses hitting the market for sale in the next 10 to 15 years; the most in history. As the baby boomer generation moves closer and closer to retirement, they will be looking to exit their businesses. How will you exit your business?
1. Work in the business until you die – NOT RECOMMENDED.
2. Semi-retire and let someone else run the business until you die – NOT RECOMMENDED.
3. Liquidate the assets of the business, either voluntarily or involuntarily – NOT RECOMMENDED.
4. Passing the business to the next generation – POSSIBILITY.
5. Sell the business – RECOMMENDED.
There are multiple possible buyers for a closely-held business. Some of the most common possible buyers are:
• A strategic buyer, such as a competitor,
• A buyer who sees a financial opportunity,
• Management Buyouts (MBO),
• Family members,
• Employee Stock Ownership Plan (ESOP),
• Private Equity Groups (PEG),
• Initial Public Offering (IPO).
If you remember from the paragraph above, there will be lots of businesses for sale in the coming years. What happens to any commodity on the market when there is excess supply and not enough demand? The price will go down. Only the businesses that are the best prepared for transition, and in the top quartile of its industry, will realize top market prices and higher multiples. The companies best prepared for transition typically have documented systems and processes, strong revenue and profit trends, and a good contingency plan.
Preparing to exit your business, regardless of the method used, takes preparation, forethought, planning and execution. It is never too early to start the process of exit planning. Do you know where you are now, and are your steps taking you in the right direction? Developing an Exit Plan will help guide your priorities for next year, and beyond. Email me now at firstname.lastname@example.org to schedule a free Exit Planning assessment. Through a series of questions, we will determine the state of your business, and the recommended steps to be taken.
Make it a great day!!