Despite the statistics on high failure rates or the many news stories about business closings, many do survive and thrive. They survive so long and do so well that they, at times, outlast their owners’ energy and interest in the company. Figuring out how to exit a business usually brings up a lot of emotions for business owners. After all, they’ve poured their time, energy, heart, and soul into making it grow and helping it succeed. Of course the thought of exiting the business makes owners uncomfortable — both personally and professionally.
In my mind, being in a position to dictate your own exit strategy should be the highlight of your career because it epitomizes the entrepreneurial dream: Go into business, be successful at it, and leave under your own terms. Unfortunately, that’s not always the case. Many owners are reluctant to make plans to walk away, and thus, they leave too many critical decisions to chance.
The truth is, as I write in The Facts of Business Life, rarely do business owners talk openly about exit strategies for their businesses. And that’s unfortunate for two reasons. First, if you don’t pick the time to exit, something or someone else will. And secondly, the best time to sell or enact a succession plan is when you don’t have to. A reality some owners don’t realize.
Always keep in mind the one key difference between the decision to exit your business and every other business decision you’ve made as its owner: Because for the first time since the company began, what’s best for the business and what’s best for you are not necessarily the same thing.
If you’re thinking or dreaming about your exit or already working on it, read on for seven tips on how to handle this key level in both your business’s life cycle and yours:
Don’t allow leadership to suffer.
First and foremost, it’s crucial to realize that you haven’t left your company yet, so you need to continue to proactively lead. Especially if you intend to sell the company or pass it to a successor, it needs to remain cutting-edge and competitive, and you need to stay focused on its continued success. The second leadership initiative you need to spotlight is a bit more personal: preparing yourself to set up the business for your exit.
Be aware that you wear two hats.
When creating an exit strategy, keep in mind that you must be in control of two unrelated issues: your own exit and keeping your company running smoothly.
You’ll need to be honest about which of these two ‘hats’ needs more of your attention at any given time, which means that you may need to give more responsibilities to your subordinates.
The wearing of two hats is harder than most imagine. For example, when do you tell your employees? How do you handle the eventual rumors? How do you explain your sudden disinterest in the daily routine, or the need to delegate responsibilities you have always handled? These are important questions that require well-thought-out answers, because not every sales negotiation is successful, and rarely does it happen on your timeline.
Even if you are closing your company down, it’s still important to make sure that you — or a delegated subordinate — closely oversee the gradual shutting down in a controlled and orderly manner. It’s not as simple as taking down the sign and locking the door behind you.
Focus on your assets.
Naturally, “assets” refers to the monetary value of your company, inventory, property, and even to the profits it is expected to generate in years to come. But it also includes your employees, their institutional knowledge, your customer base, and more. As I have pointed out before, make sure that none of these things slip off the radar as you are focused on your exit.
Having an accurate grasp of your business’s assets as they currently stand will put you in the best possible position to make sure that you choose a buyer or successor (if you go those routes) who understands and has the financial capacity, experience, and knowledge of the business and of business concepts in general.
When making plans, play the long game.
What I means is, whenever you can, make your exit plans as far out as possible. This includes three key factors:
- Identify who would be your best or targeted buyer.
- Assess the value of your business today and compare this to what you want to have when you exit.
- Consider when would be the optimal time to exit, business-wise and personally.
Of course, it’s okay to change your strategy as you go — after all, the market will change, as will your list of potential buyers. But what doesn’t change is the fact that if you don’t plan your exit, eventually someone or something else will. Beginning this process sooner rather than later will help you focus your business planning efforts on what needs to get done so you can maximize the value of all your assets. The rule here is to leave yourself more than enough time for adequate preparation.
Be ready to (potentially) market in a whole new way.
If you decide to close your business down, marketing your product will slow down and eventually stop. And if you pass the company to a successor, he or she should know what has worked, and what they want to change and try. However if you decide to sell your company, you’ll have a whole new dynamic to consider: In addition to marketing your product and business brand, you will need to successfully market your company.
Strategize like a winner.
The marketplace is a war zone, and the battle never ends. In fact, a reason that often prompts business owners to step aside is that they’re experiencing “battle fatigue,” resulting in less enthusiasm and a lower competitive temperature. After all, if you close or pass your business on to a family member, the war zone will make no further demands on you except to maintain what you’ve accomplished until you leave. But if you sell, you’ll temporarily find yourself embroiled in a completely new war.
The ultimate goal in this new war zone is to sell your business for its maximum value and have it structured to minimize the tax bite, all under conditions that you consider optimal. Your battle strategy will include figuring out how to showcase your company, making it ready for sale, developing criteria for picking your best candidates, creating a list of candidates who have the capacity to pay, putting together the information buyers will need to evaluate your business, and much more. Obviously, thorough preparation is key.
The good news is, as a successful business owner, getting your company in battle-ready shape is something you already know how to do: Make sure your company is running optimally and being aggressively competitive in the market. Again, just be sure that you don’t give so much attention to one ‘war zone’ or the other suffers.
Put your business knowledge to work.
Here, I’m not referring to what you know about your particular company — I am talking about business knowledge in general, the type that transcends industry. The more you know about the market, how competition works, maximizing your assets, etc., the more accurately you will be able to value your company . . . and the easier it will be to justify your valuation of your assets and the company’s overall worth.
The catch here is that a solid grasp of business knowledge is something you need to have gained and implemented earlier in your company’s life cycle if you want it to work in your favor now. If you’re selling, your company won’t have much value to buyers if it doesn’t operate using processes and procedures that are effective and efficient. If you’re passing your company along, a solid foundation can ease the process. In both cases your business has to be able to operate at a high level — without you. If the business can’t operate this way and demands your input and strength, the value of the business lessens, and you’re setting up your successor to possibly fail.
Ultimately, the more you educate yourself and the more meticulously you plan, the more likely the exit choice you make will be the right one. Remember, your decisions and focus at this time will determine what your company’s and your own legacy will be, whether that’s in the memory of others or in how it operates under new management. And I don’t believe that’s something you want to leave to chance.
By Bill McBean is author of The Facts of Business Life: What Every Successful Business Owner Knows that You Don’t.
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