Planning for Your Exit Before You Plan on Exiting

It may be years before you are ready to leave your business. You may absolutely love working, and can’t imagine retiring any time soon. Or maybe you want to exit, but you don’t have the financial resources to leave the business just yet. No matter which situation you find yourself in, it is inevitable that you will leave one day. Being prepared ahead of time is crucial to a successful exit from your business. Successful owners start thinking about their exit plan now – long before they plan on actually exiting. They start by building a successful business that has value to a buyer now! You can build your business two ways: One is defensive and one is offensive. Using a mixture of them both will enhance the quality of your business and ensure that your eventual exit will be a successful one.

Defensive: Although you may have no intention of exiting anytime soon, it is extremely important to “go on the defensive” and be prepared to exit at any time. You never know what the future will hold.

• The market could take a drastic turn for the better – or the worse, and it may be time to get out.
• An offer you cannot pass up may come along unexpectedly.
• Or in extreme cases, you could fall ill or disabled and unable to run the business

Sadly, we don’t live forever and none of us know when we are going to die. Knowing that your company will be able to function without you in the event of an emergency is important to saving the integrity of the business you worked so hard to build.

Offensive: “Offensively” speaking, you want your company to be one that thrives for a long time, especially after you exit. To ensure that:

• Put strong systems in place – financial, operational, sales, etc..
• Make strategic business decisions today. You’ll reduce risks and prepare your business to be more valuable before you leave.
• Build a strong management team
• Become less financially dependent on your business in the final years leading up to your exit are important things you can do to build a vibrant saleable business that people will want to buy.
• Look at the areas in your business that need improvement. Weak links could be detrimental to a profitable sale, so fix them now.
• Assess your strengths and build on them to increase the value of your company.

Get ahead of the game by planning for your exit now. There is no harm in being prepared many years in advance.

Learning that building a better company today and exit planning are the same thing will ensure that your exit will be a successful one.

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5 Ways To Prepare Your Leaders For Success

There is no doubt that applied knowledge and targeted experience is one of the keys to success. When employees gain the knowledge and experience they need for higher level roles before they get into the position, they are better positioned to lead into the future. Giving employees early leadership experiences and opportunities ensures the sustainability and future success of your business. How can you prepare your leaders for more responsibility?

1. Let them learn on the job. This means allowing them to make mistakes, recover and learn from them. It means expecting them to address issues directly and come up with creative, effective solutions. This helps them learn to think like an executive.
2. Give them “fix-it” or “turnaround” jobs. A stretch assignment will force them to problem solve, communicate across organizational boundaries, overcome obstacles and build effective relationships. They will learn to become more persuasive, tough, and influential.
3. Have them build something from scratch – start up a new project, build a new team. This will teach them resourcefulness, initiative, and tap into their creativity. If it’s a part of their current role, they will have to learn how to prioritize what is most important.
4. Encourage ‘a day in the life’ where you have your leaders switch positions with a colleague in a very different role. Encourage them to go deeper in the organization to see firsthand the challenges your team faces with ineffective systems, poor hand-offs, difficult people, dysfunctional communications, etc.. This exercise will expose them to your business in a very different way.
5. Expose them to the financials so they understand how you make money, what are your most profitable products, who are your most profitable customers, where do you have losses. Help them understand the impact of decisions on the bottom line.

Giving employees and potential successors these kinds of experiences long before they need to step into an ownership or management position is an invaluable way to groom a successor. Giving up control can be difficult, but their transition to effective leadership will be much smoother with these kinds of experiences.

Making A Relationship Sale

We define a ‘Relationship Sale’ as a sale to a family member or key employee — someone you have a ‘relationship’ with in the business already. When planning your exit strategy, a ‘relationship sale’ to a family member or to a key employee can be easier, and perhaps more reassuring, than finding an outside buyer. But many business owners will need to finance the sale of the business, especially if their chosen successor does not have the financial means to cash you out of the business. If you suspect this may be case, keep reading to learn how to make your relationship sale a more successful one.

Start Now

Creating a successful relationship sale is a time consuming process; a lot of hard work and planning must go into a productive sale. Starting early will ensure that you will have the time to work out details and enhance your business while you are still in control. And if you encounter a few bumps in the road, which you will, it won’t throw the entire plan off course.

Know It’s Going to Take a Few Years.

A relationship sale to a key employee or capable family member takes time. The current business owner must be willing to commit to remain in control for between three and eight more years, preparing the business and the successor. If you do not have this time, you may need to explore other options.

Define What You Want Most From the Business.

Ask yourself what do you want to get out of your business once you have exited. Knowing what is important to you will make planning for your exit a lot easier. Do you need a certain amount of money to maintain your lifestyle? Do you want to exit by a certain date, or birthday? Do you want to define a family legacy? Do you want to create a sustainable business that stands the test of time? Knowing these things before the relationship sale is of the utmost importance.

Assess Options

Your exit plan will inevitably begin with consideration of all of your options. Some find it useful to write down each option and evaluate the business benefit, employee benefit and personal/owner benefit. With this objective view, you can map out your plan.

Share Your Exit Plan – Appropriately

When the time is right, you’ll want to share your plan -- not with anyone and everyone, but first with the critical people who need to be aligned to make it happen. Most owners are concerned that by sharing their plan, their best employees will flee. It’s possible they will, but if you have built a plan that demonstrates legitimate opportunities for growth and they can see themselves as a key piece of that plan, they probably won’t. Offering them golden handcuffs or other incentives may be wise, if they are truly key to your business.

Sharing it will take some flexibility away, but it is an absolutely essential step. You need the key people to know your exit plan and to take it seriously, and without a written plan it is harder to get that respect. You are already working with your buyer so having the option to show them your plan, gain their support and alignment to it, and to be able to discuss and edit your exit plan as time goes on is mutually beneficial. It makes the transfer smoother, giving you an advantage that an outside sale would not.

Grow the Value of Your Business

The more valuable your business is, the bigger profit you get once you sell it. Buyers will value (and of course pay more for) your business more if it has the potential to keep growing. Not every owner wants or needs the big payout. Increased business value can also position your capable family members or key employees for their own success and leave you with the pride of business legacy.

Groom Capable Key Employees or Family Who Desire Ownership

A team of leaders that can operate and run your business without you is highly valuable to any buyer. In a relationship sale, it is critical that the new owner be willing to invest in their business, personally and financially. Developing and grooming your team before you leave is crucial.

Ensure Your Buyer is Ready for New Role

Transferring ownership too soon or to an ill prepared employee or family member can be detrimental. The new owner must be prepared for his/her new role. Being a CEO/Owner requires a very different level of responsibility than a C-Suite role. The risks are far greater. If your buyer is not ready, be prepared to stay an extra few years to build their skills, experience, confidence and competence…. Or be prepared to step back into the business if it falters.

Expect to Finance the Sale of the Business

Make sure that your buyer realizes that they will have to invest real money to buy the business. Drawing out a financing plan will make it more likely that you get what you need and want out of the sale, and will give you confidence that the new owner is capable of paying you the full value of your business. Often in a relationship sale, owner financing is done through the cash flow in the business.

Keeping these factors in mind when preparing for a relationship sale will help you make a successful sale to a key employee or family member. Good luck!