Based on the Business Enterprise Institute’s 2019 Business Owner Survey, 81% of business owners want to stop working in their business in the next 10 years, but only 21% of business owners have put their plans in writing. As Ben Franklin once said, “if you fail to plan, you are planning to fail,” and when it comes to something as important as your future, you need to plan for your exit from your business.
It is a fact that 100% of business owners will leave their business at some point, willingly or not. Having a successful exit plan in place can make the transition easier. Here are the questions you need to be asking yourself.
1. Is your exit plan based on your objectives?
A successful exit plan is built on what your situation dictates—it’s not about the advisor’s goals and objectives. Do you want to pass your business to your child/children? Do you want to be a minority owner that’s involved with the company longer term? Or, do you prefer to move on, leaving the business in the rear view mirror? Having the end goal in place can help develop a plan that fits.
2. Do you have an experienced team of advisors to design and implement the plan?
One of the first things we do when we put together a succession plan is work with you to build out a team of advisors to execute the plan on your terms. They can be advisors you’re familiar with or we can bring new advisors to the table as well. By bringing the right advisors to the table, we’re able to craft a plan with your objectives in mind.
3. Does your business have positive cash flow and do you know its value?
Cash flow is important to an outside third-party purchaser. It proves the business is viable and worth buying. If you’re selling internally, the future cash flow of the business will fund your pay out.
If you don’t know the value of your business, you’re at the whim of the buyer. A third-party buyer will know how much they wish to spend, so you want to go into the negotiations with the knowledge of exactly how much your business is worth.
4. Do you have a strong management team in place?
It’s difficult to sell a business to a third-party without a management team in place to continue to run the business. If the business is completely dependent on the owner and your knowledge, then when you leave there’s no intrinsic value in the business.
If you’re pursuing a sale to insiders, you’ll most likely sell to the management team. They must be able to run the business without your guidance. It may be necessary to bring in a management consultant to train the management team to run the business. This can be a lengthy process.
5. Have you given it enough time?
A lot of good things in life—a successful business, a successful career, a good loaf of bread—take time. It will take time to plan and implement the necessary steps for your exit . It may take years to build enough cash flow to support the value or put a strong management team in place. You want to give yourself 5-10 years to plan and put things in place for a successful exit.
There’s a lot that goes into developing and implementing a successful exit plan. MarksNelson can help you navigate the process, helping you achieve your ultimate goals. Reach out to us today to learn how you can move forward with an exit plan designed with your goals at the helm.