The First Step in Developing an Exit Strategy

If you are a small business owner, do you have a plan on how you are going to leave your company? If you don’t, you are in the majority.

A recent study conducted by Securian Financial Group of 500 small business owners found that more than sixty percent of them have no plans to leave their companies and are not working on any type of exit strategy.

“One third of the business owners we talked to plan to leave their businesses in the next five years and 60 percent plan to exit in 10 years, but many of them have no exit plans in place,” said Andrew O’Brien, director, Client Solutions, Securian Financial Group. “With no exit plan, the small business owner not only risks the future of the firm but also its ability to generate income for the founder.”

In my work as a turnaround authority, I’ve seen way too many examples of unplanned exits from companies. Owners and CEOs have abruptly left due to scandal, suicide or medical situations. Sometimes they succumb to the stress and take an extended leave, or unexpectedly exit a company far earlier than they or anyone else anticipated.

These situations never go well. If you want your business to thrive in the future, long after you have left, you need a plan for your exit strategy. Even if you plan to work until your last breath, you still need an exit strategy.

Entrepreneurs are often too busy with just the day-to-day running of the company to look five and ten years down the road. And developing an exit strategy does take time. That gets me to the first step in developing your strategy.

You need to determine when you want to exit. That determines how you need to start planning. For example, if you know you would like to sell your business in five years, you would most likely have plenty of time to plan and implement strategies to make your company attractive to a potential buyer. But if you delay that planning, even just six months, then you only have 90 percent of that time remaining. The longer you wait, the fewer options are available to you.

Taking a long-term approach allows you the time to consider all the options available to you. Do you want to sell the company outright? Would you rather liquidate everything?

Other options could include going public or grooming a family member to take over running the company. You may want to consider merging with another company or make your business attractive to another for acquisition.

If you give yourself time to plan you also have time to hire the right advisors — financial planners, lawyers and consultants such as me who can direct you in selecting the best option for you and your future.

Giving yourself time to plan your exit strategy can help ensure the financial health of your company in the future.

You don’t want to find yourself in five years ready to move on to another challenge but not in a position to leave because you didn’t plan ahead. Thinking of the future is one of the most critical jobs of a business owner.

As an illustration I’ll close with one of my favorite quotes from Warren Buffett: “Someone is sitting in the shade today because someone planted a tree a long time ago.”

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