Six Reasons Why Business Owners Should Prepare Their Exit Strategy Now
According to studies, 7 of 10 owners hope to exit the business in the next ten years, but only one of ten has a plan to achieve that goal. In Walk Away Wealthy, CFP Mark Tepper has set forth a 12-step-process that enables owners to sell their business at a price they want on the timetable they set.
Six Reasons to Plan for Exiting NowHere, according to Tepper, are the six principal reasons to start creating an exit plan today:
First, you will learn if your business is saleable and, if so, for how much. If your business is not currently saleable, knowing so will enable you to take proactive steps to make the company more attractive to potential buyers.
Second, you will immunize yourself to the ups and downs in the M&A market. Historically, business valuations expand and contract in three to five year business cycles. If you have a solid exit plan in place you may be able to take advantage of a hot market if one were to develop before your originally planned exit date.
Third, if you have a business plan in place, you will be better able to assess and respond to an unsolicited offer to buy your business. Most owners of successful businesses will at one time or another receive an unsolicited offer to buy their company. A well-crafted business plan will establish what your business is worth and enable you to better assess whether the buyer's offer is reasonable.
Fourth, you will have more exit options, including an intra-family transfer, if you've prepared an exit plan. Intergeneration transfers are replete with tax, inheritance, management and operational issues that are best resolved with proper planning and execution that may consume a lot of time.
Fifth, with an exit plan, you will be better prepared to deal with unexpected issues like the death, disability, bankruptcy, or divorce of your partner. Dealing with sudden and potentially catastrophic events will almost inevitably consume more time and management attention that would be better focused on managing and growing the business. With an exit plan that addresses succession issues, the chaos that ordinarily ensues upon the sudden loss or disability of a partner can be averted.
Sixth, you'll get more value at closing on exit. Without a plan, you may leave substantial value on the table when you finally exit.
ConclusionBusiness owners often resist thinking about the inevitable disposition of their businesses because of what are perceived to be more pressing operational and management issues. As Tepper makes abundantly clear in his well-written text, however, failing to prepare for what is likely the most important event of their financial will likely lead to disappointing and suboptimal results for entrepreneurs and business owners.