You are brave enough to read on – good for you. I promise this won’t be morbid. Exit strategy is a subject that you (and your business, your spouse, your children and your investors) need to know about.
As the owner/President/CEO of your firm, you’ve carefully thought about your budgets for the next few years. You have a strategic vision and long-term goals for the business. You even have a couple candidates for a successor who will eventually be ready to step up and lead the business when the time is right for you to leave. Wonderful! Now, what good will all that information do locked in a drawer (or worse locked in your brain) if or when the unthinkable happens?
If you are the glue that holds your business together then your business, and its value, will evaporate without you.
Why an Exit Strategy is Important
I know, you always look both ways before crossing the street and you just had a check-up last month. But you are mortal and too often business owners die suddenly, leaving their spouses to manage the business for the first time, while trying to deal with heavy grief. The grief will win and the business will wither or die. Businesses have been shut down “for a short time” out of desperation, never to restart again, reducing all that value you’ve built up over decades to zero. Just the thought of that should make you queasy. This is why public boards focus so much time on succession planning. The organization must outlive and continue to thrive even with the loss of key executives.
Develop an Exit Strategy
It is never too soon to develop an exit strategy. I’ll say that again. It is NEVER too soon to develop an exit strategy. Anyone launching a new business should begin with the end in mind. Do you want to sell the business to the highest bidder, hand it down to your children to run, take much of your money off the table in middle age to pay for the kids’ college but stay partially invested and working in the business to give you upside potential upon your final sale and exit? I can go on and on. Each approach requires different infrastructure to be ultimately successful.
You may believe that you are indispensable because “no one can sell your product or service as well as you can.” If this is the case, and you plan to retire to an unnamed island in the South Pacific with no cellphone service and infrequent mail delivery, there is no chance that a buyer will pay you much for the business. At best you can just sell off your equipment. You want to get value for your ideas, your contracts, your overall business. You can eliminate much of the risk for the buyer and maximize the sales price of your business by assuring that your business can run without you. Among other things, this means having a strong sales staff that can close even the biggest, most difficult, deals.
Outline Your Exit Strategy
Take a little bit of time this week to outline your ideal exit strategy. Talk it over with your trusted advisors: your attorney, your CPA and someone with enough operating experience to play devil’s advocate. Find someone who has “been there, done that.” If you have an advisory or a fiduciary board, bring your ideas to them. Tweak your strategy and include key action items needed to assure success. Rethink it every year on your birthday as a gift to yourself. It might change over time and that’s OK. Your priorities and needs will also change, as will the market. Whatever your exit strategy, set and keep the wheels in motion to create a solid business foundation that can and will survive you. Make sure your family, your key advisors and your leadership team all know your ultimate plans so they can help you optimize and align tactical actions with this strategy.
Planning Pays Off
You’ll be pleasantly surprised when you eventually choose to exit and your pre-planning pays dividends. There won’t be a mad dash to the finish line. What you do to strengthen your business for an exit will improve growth and profitability in the near term. You could eventually realize a terrific sales price in the form of a larger multiple based on a bigger EBITDA. You and your family will be amply rewarded because you were clever enough to have the foresight and the vision to design a sustainable business model that did not rely solely on your own skills for success. It feels good to control your legacy, even when you can’t control the timing of your ‘final exit.’ Continually align your key decisions for the business with your exit strategy so that 100% of the value you are creating can be realized. We’ll explore exit timing in my next blog, “How Do I Know When It’s Time to Move On.”
For the short-term, let’s begin this exit planning together. A rough outline will work and you don’t even have to pick a goal date...yet.
"My exit strategy for my business is..."
"To be ready for an exit, we must do the following..."
Kim Denney is a Newport Board Group partner based in Houston, Texas. Learn more and contact Kim here.
