Does every business need an exit plan? In short, the answer is almost certainly yes. Not just because most owners rely on the sale of their business to fund their retirement, but because an effective exit plan builds value in the business over time, years before an anticipated sale. This insures that if an owner needs to exit the business before they are ready (which statistics show that 50% do), they are still getting the best value for all of their hard work building the business.
An effective exit plan is more of a method for developing long-term goals and staying on course, than it is a step-by-step sales guide or estate plan. It’s a process for building a business that functions independent of its owners, so buyers will pay a premium to acquire it. An effective exit strategy within a business plan makes certain the business is ready for sale at all times, at the highest value, even if the owner is not ready to sell. Lastly, the most effective plans are the ones that include a plan for life after exiting their business.
This is by far the most over looked portion of exit planning, but it’s arguably the most important. If an owner has not considered how they will maintain their physical, mental and social wellbeing after an exit, they are ill-prepared to leave the business. An owner needs to determine what will get them out of bed each morning when they no longer have a business to run and test it out before selling the business.
So what would warrant a “no” response to the title question? Which owners don’t need an exit plan?
The owners who meet ALL of the following criteria:
- Don’t require any proceeds from the sale of the business to fund retirement plans.
- Believe, and can support, they could live off of the proceeds of the sale of the business if they were forced to sell today.
- Don’t care what happens to customers, employees or the reputation of the business after the exit.
- Anyone could run the business with the same level of success, because of the systems and processes in place for every aspect of the business.
- Have in place specific plans for the rest of their life, which ensure their social life will be fulfilling, intellectually stimulating and full of passion and purpose immediately after the exit, and for the remainder of their years.
If all the criteria are met, then they may be the rare breed who may not need an exit plan. Either that or they already have one in place.
If even one of the criteria is not met, then an effective exit plan should be added to the top of their list of things to do. Fifty percent of business owners exit their business when they’re not expecting it. In that event, if the business is not ‘exit ready,’ it will likely sell for a large discount, and the owner’s retirement plans may crumble. Implementing an effective exit plan, however, will leave the owner with far better results. The exit plan will set out to protect the value the owner has created to date, sets a course of action to improve value and ensures the business is ready for sale at all times. It also gives business owners comfort in knowing they are financially and emotionally prepared for the remainder of their life, after exiting the business. Which is why all owners should consider an exit strategy, at the end of the day. Who can afford not to have a successful exit plan?
Rich Gunn leads BPM’s Value Acceleration Service Team, which helps with succession, transition and exit planning for business owners. Rich is a Certified Exit Planning Advisor and a member of the Exit Planning Institute.
The Business Owners’ Special Series (B.O.S.S.):
The Business Owners’ Special Series (B.O.S.S.) is composed of several informational articles for business owners who are proactively seeking guidance from experts on how to implement value acceleration in their business. Be sure to keep reading, if you desire to develop your business to its maximum potential value and gain an understanding of how and why beginning the process sooner results in building greater value.