Exit Planning – It’s Not What You Think

As we get ready to close the door on 2016, many business and investment analysts believe that over the next 8-10 years, an excess of $10 trillion dollars of wealth could be transferred as the baby boomer crowd look to retire, sell off their companies, and exit the everyday working world.  As a CFO consultant – one of my main duties is to be a true business partner to my clients throughout the life cycle of their business, and not only help my client’s companies grow, but help them think about the end game of their business.  Because wishing for a good price when selling your business is NOT a good exit strategy!

Much like a baseball manager determines when use his pitchers throughout a game (does he bring in his middle relief pitcher in the 7th inning when the bases are loaded, or go to the ace closer early knowing he might not be available in the 9th?), or a football coach who must make a decision about a coin toss at the start of the game (which way is the wind going to be blowing in the 4th quarter if I need a field goal to win the game) – business owners should think early and often about what will happen to their company at the end of their working life.  Years and decades can slip by quickly as you work to grow your business, and waiting until retirement age to think about the end game of your involvement in a company can impact its price, sustainability and legacy.  Questions about the future should be asked not only for long term goals, but can often be used as a means of growing the business in the first place!  And keep in mind your decisions impact not only you and your family, but your employees and their families too.

The question is then, what makes a good exit strategy, and how do you to create one?  Oddly enough, what make a good game plan to grow your company, makes for a good strategy to exit your company.  It’s a business decision after all.  Nearly half of all company exits are not voluntary.  Often called the 5 D’s, (death, disability, divorce, distress of the business, and disagreements among partners), these factors can arise suddenly, and lay waste to decades of hard work. So with that in mind – here a few things to keep in mind that will work to grow your business, while helping you prepare for a positive financial exit:

Build a business that is transferable – Focus on creating overall enterprise value, don’t just focus on the top line or income.  Do you have recurring, repeatable income?

Understand your market – What is the marketplace look like from my company?  Do you have a unique product or niche that no one else has?

Plan for your succession – If you run a family business, does my company stay in the family, and if so, who takes over? If you’re not a family business, Have you created a strong management team? Are there documented policies and procedures in place, and can the company carry on if you step back?

Demonstrate sustainable growth year over year – It’s been said that only 30% of all family businesses make it to the second generation. So, while it helps to have grown in leaps and bounds, slow and steady is just as good, especially if it’s a family business.  You want to create a legacy!

It’s important to have clean financials – Are your books in order?  Are you using your company to pay all your household bills?  Can you tell the true value of your company?  Have you filed your taxes?  And can someone read and understand the story of your company from the numbers?

In summary, thinking about the endgame of your company is not something that can be solved with hope and a prayer, but rather a business strategy that should be developed, analyzed and evaluated throughout the life cycle of your business.  Being prepared is more than just a motto the Boy Scout’s live by, it can help you prepare for your financial future!