Successful business owners have done a good job of starting their company, creating a product or service, growing the business and taking care of clients and employees. But even the most successful often fail to plan for their exit, says Jeff Powell, Managing Director, Brady Ware Capital.
“Owners are so buried in the daily grind that they raise their heads 25 years after they have started their company and are not sure how they got here or what to do next,” says Powell. “So they put their heads back down, and it becomes a vicious cycle. You need to think about what outcome you want, because you want to exit on your terms, not when you’re forced to leave.”
Smart Business spoke with Powell about how business owners can ensure a successful exit from their business and achieve their desired outcome.
Why do so many business owners avoid thinking about an exit?
Many simply don’t know how to bring it up. They can’t talk to their peers in the industry or their employees, so they’re looking at it in a vacuum. An expert adviser can help guide a conversation that starts simply with, what’s on your mind? If you’re thinking about exiting, what does that look like? Do you want to walk away tomorrow? In five years? What are your options?
Start with a blank whiteboard and draw out what an exit looks like for you. Then an expert can take a diagnostic look at the company, where it’s strong, what is marketable and what isn’t.
An adviser can determine that, today, you could get X for the company, but if you cleaned up these things, you could get more later. They can help you maximize value, make sure your financials, legal situation and HR are up to date, and ensure that the company is solid.
Owners are focused on clients and their people, but they need to step back and focus on the bones of the business. From the beginning, think about what your exit looks like. You can check the value of stock holdings to the minute, but how often do you check the value of your business? You’re starting a business to monetize it and eventually sell, so you should always be thinking about how to set it up to get there.
How can an owner position a business to maximize value?
Focus on the basics. Who is your best salesperson? If it’s you, and you leave, the company’s sales go with you. When was the last time you took a vacation without checking in every few hours? If the business is unable to run without you, you are not positioned to sell. You need a leadership team that can run the company in your absence so your business can stand on its own.
Also consider your client base. If one client is responsible for 90 percent of sales, and that client leaves, you no longer have a business. Diversify your customer base so the loss of one client doesn’t have a major impact.
How important is to have a post-exit plan?
This is critical. For many owners, the business has been their whole life for decades, so you need to plan for what’s next, whether that is travel, a hobby, or even starting a new business. Do you want to walk away and enjoy life, or do you want to continue working and help the buyer? Determine what your exit looks like while you still have options, not when you have to leave because of an unforeseen event.
Don’t ignore exit planning because you think you’re too busy running your business. This is your retirement. It has taken a lot of years to grow your business, and you need to take a similar approach to knowing its value and having a plan for your exit.
You’re only going to sell once. It’s uncharted territory, and you need to make sure you have the right people around you so you understand the value of your business and your options. ●
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