Why All Business Owners Should Have an Exit Plan Ready
Many business owners are planning to sell their business at some point in the future—or at least their personal ownership stake. That’s when it’s time to retire or move onto the next business venture. Whether you own a small business or a large company, you need to have a sound exit plan. Even if you are not planning to sell anytime soon, it helps to know your exit strategy long before you might need it. You may have multiple paths and options laid out based on different factors that could arise.
How Many Business Owners Are Actually Ready?
Christopher Snider is the CEO and president of The Exit Planning Institute. In one of his webinars, he shared some fascinating data about business owners and their exit plan readiness:
- 66% of business owners are not familiar with all of their exit options.
- 83% of business owners have no written transition plan (exit plan and/or succession plan).
- 49% of business owners haven’t done any transition planning.
At the same time…
- 75% are planning to transition in the next 10 years.
- 48% are planning to transition in the next 5 years.
If this data is correct, that means roughly half-to-three-quarters of all business owners are planning to sell their businesses and move on within the next 5-10 years. Yet a very high percentage of them haven’t done any serious exit planning or researched their exit options. This is truly concerning.
Creating a Strong Exit Plan
There are many facets to an effective exit plan. We talked recently about determining your wealth gap and your business value gap. These steps can help you determine where you are financially (both personally and the valuation of your business) and where you need to be by the time it comes to sell.
Business Valuation
A proper business valuation is extremely important. You must know what your biggest asset is worth and what it will net you in a sale or buyout. Many business owners have a biased view of their company’s value because they’ve invested so much of their own time and money into building it up. All your effort does not necessarily translate into real-world market value—in other words, what an outside buyer is actually willing to pay for your business.
Exit Planning Options
As you develop your exit plan and explore your options, you will find there are a number of different paths you can take when you are ready to move on.
- Liquidation
- Liquidation Over Time
- Transfer it to Family Member(s)
- Sell Your Ownership Stake to Partner or Investors
- Sell Business to Managers and/or Employees
- Sell in the Open Market
- Sell to Another Business (Merger/Acquisition)
- Initial Public Offering (IPO)
In some of these situations, you will be transferring ownership of the company to a new entity and you will simply cash out your side of the deal. In others, you will need to develop a succession plan. This is another key part of an exit plan if you are essentially removing yourself from the business without selling off the business as a whole. It is even more important if your role in the company is vital to its success. Who will take over when you are gone? How will the business continue to thrive without your involvement? Check out or past two-part article about Building Business Value By Becoming Replaceable (Part 1 | Part 2) for more insight into this process.
Are You Ready for Your Exit Plan?
Above all else, you have to be in the right mental state when creating your exit plan and ultimately when you make your exit. If you are not ready for it (financially, emotionally or otherwise), it will not go smoothly and some decisions may come back to haunt you, your staff, your business partners/investors and anyone else who will be affected by your departure.
The real question is: Are you truly ready to plan your exit?
If the answer is no, you have some work to do? If the answer is yes, you also have work to do. You need to start your exit planning as soon as possible. Whether you plan to move on in 5 years, 10 years or more, it’s never too early to explore your options and create a sound exit plan.
For help with all your business planning and exit planning needs, contact Illumination Wealth for a private consultation.