Research has repeatedly shown that businesses that have been prepared for the owner’s exit are significantly more likely to endure than unprepared businesses. These guidelines around an exit strategy can help your business legacy live on – and get you a satisfactory result.
1. Preparation delivers the best results
The key message to take away is this: start your exit strategy now – don’t wait until that ‘later time’. Life is full of unexpected turns. You may not have the time to do what’s needed to get the best results.
2. The chief barrier
The chief impediment to a successful exit strategy is procrastination. It’s all too easy to convince yourself that you’re too busy at the moment, but you’ll start the process next year ¬ or whatever future date you rationalise as reasonable.
All sorts of issues could underlie this rationalisation. One is the dislike of facing up to the future, another is a reluctance to delegate responsibility – after all, like many business owners you may have persuaded yourself that no one can do it as well as you.
3. Develop a succession team
There are advisors out there, starting with your accountant, who have helped other business owners through the business exit process. Find them, and tap into their knowledge. There’s no point in reinventing the wheel on your own.
4. Making the business affordable
If you intend to pass on the business to family, or perhaps to a management team, one major issue can be making your business more affordable. You may need to make some structural changes, such as separating the business into two parts: one company owning the operating part, the second company owning the assets, such as your premises or your equipment. Retaining the asset-owning part and leasing the assets to the operating part could give you a tidy retirement income. But these structural changes can take time to bed in, so to repeat the message, don’t delay, start early!
5. Decisions and training
If family or management are you desired successors, you will likely face issues around fairness to everyone while retaining the skills of key staff. These issues will require careful thought and here again you will benefit from the experience of your transition team. Their impartiality can help take the heat out of potential conflicts.
The next step is to start training your successor(s) – again, a process that takes time. One major hurdle business owners must often clear is learning to delegate.
6. Improving the business
If there’s no one suitable or interested in your family or management team, an outside buyer will probably be your target. Here’s where your accountant can add value by helping you prepare the business for maximum sale value. The changes could range from better business systems and an updated customer database to tighter money management through key performance indicator monitoring. You’ll want to show the buyer they are gaining a well-run business with efficient systems that will make a transition as painless as possible. Of course, all this is worth doing at any stage.
If your business is presently based largely or wholly around your personality, you’ll also want to show that it can stand on its own if you were to walk out right now. Making these changes can take time. Did we mention that it certainly pays to start your exit strategy as soon as possible?