Before you can get comfortable, you first need to define your exit strategy. This means being able to define what your exit will look like and the range of options are broad and include:
- Complete cold turkey break from operations
- Exiting day-to-day management but continuing to have operational final say
- Entrepreneur’s retirement: participate when you want to, and delegate decision making power to an individual successor or board of directors
- Sale of the business
It may seem odd to consider planning your exit strategy before you have defined what your exit strategy is and before you even have plans to leave. No one wants to plan to exit the business too soon. Frankly, when is it ever the “right” time to leave the business? However, the best way to ensure you leave when you want, on your terms, and with plenty of cash in hand, is to plan your exit strategy early. Planning your future and getting comfortable with what your exit looks like sets your business on a path of growth and sustainability.
Options for your exit are varied. You could sell, take the cash, and run to retirement; or you could approach your exit strategy as a transition that provides space for successors to grow into management and leadership roles. Either way, the vision for your exit strategy needs to be clear so you can build the business now for the outcome you desire later. Unsure of what your exit strategy should be? Let’s review the two previously mentioned options: sale and transition.
Selling Your Business
Understanding that the business is a large part of your identity, it is common to have anxiety around what “next” looks like for you. It is normal to be questioning, “What will I do after I sell my business?” Other questions that are helpful to address include:
- How do I survive economically after exiting the business? How much of the after tax proceeds should be invested to protect my financial security? After all, the business typically provides numerous benefits.
- How much of my liquid net worth do I want to reinvest in other business opportunities?
- How will my children react to my exit from the business and selling to a third party?
- How will my key managers’ and employees’ livelihoods be impacted?
Selling the business as a succession option does not remove the need to continue planning. It simply presents a different set of opportunities and challenges. Following the sale of your company, you will undoubtedly be approached by family members or people in the community to invest some of your liquid assets in a new business venture. Perhaps you will get the itch to start a new business yourself. Having your exit strategy in place long before the consideration of a sale will help you develop answers to the above questions. It will also help you determine, and ultimately do, what is best for you and your family.
Family or Non-Family Succession
Planning for the transition of ownership regardless of the circumstance is an emotional journey. Whether the transition is to someone within the company who has been a long term employee or to a family member, the dynamics are complex. When you look at a potential exit strategy that involves these complexities, here are some helpful questions to address:
- Do I have a capable successor in either the family or the company?
- Are they interested in taking over the company?
- What if the family member or long term employee in my company is not who I would choose to take over?
- Is there sufficient cash-flow to support the sale of my business to my family member or member of the company?
- What will the business look like in the future?
When considering an exit strategy, it is important to understand that you are not giving up your role, losing control or otherwise walking away from what you have built. Rather, you are strategically focusing on the future of your business, as well as what “next” looks like for you when you decide it is your time to leave. If you are looking at family succession, you can build the road map to identify, develop and transition leadership and ownership to your successor(s). If you think you may sell, you can focus your energies on what it takes to get the most for your business. Either way, when the day comes for you to hand over the keys to your business you’ve already laid the foundation for future success.
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