Business Exit Planning: What You Need to Know
Exit planning is an ongoing project, not something you can do overnight—or over a year. Ideally, you begin planning for your exit the day you hang out your shingle, since exit planning is a key component of corporate oversight.
Only a fraction of companies on the market actually sell. If you want yours to be in this lucky bracket, here are four steps you can take now, whether you plan to sell in a year or in two decades.
Maximize and Document Business Value
Exit planning is an important part of business strategy. Build a business that drives value in the present, because this will also drive future value. Important sources of capital include:
- Customer capital: Your base of customers, relationships with customers, and your agreements with those customers.
- Structural capital: Establish effective processes and maintain diligent financial documentation.
- Human capital: Implement and monitor professional development programs to nurture a strong team.
- Social capital: Foster a functional, efficient corporate culture.
The more easily you can transfer these four sources of value to a buyer, the higher your business’s value will be. Increasing value in these four areas drives business growth, too, allowing you to make more money and enjoy more success in the present as you anticipate the future.
Create a Personal Financial Plan
Purchase price is just one element of a successful sale. You must consider how much money you hope to take home, and whether it will be sufficient to sustain the lifestyle you want. It’s also important to factor in contingency plans, including the “five Ds” or divorce, disability, business distress, death, and disagreement. These can feed unexpected financial instability in an otherwise successful business. Without an unflinching look at your financial needs, you can’t have a successful exit.
Know What Comes Next
Three-quarters of owners who sell their businesses end up regretting the decision. It’s easy to forget about the emotional ties you have to your business. Following an exit, those ties become more salient. Owners spend 40-80 hours a week, for their entire lives, with a business. The business is their baby. They’re passionate about it. So when it’s gone, they need a plan.
There's no right or wrong way to exit. You can retire, start a new business, cultivate a new hobby. What matters is having a plan for something specific—and the budget to support it. You must have a clear understanding of who you are outside of the business, and how you want that person to grow following your exit.
Most business owners are task oriented. They might not consider their emotions and relationships, especially their emotions about their business. So when it comes to anticipating their post-sale emotions, they tend to come up short. They invest little time in this thought process, and they get hit on the other side with a wave of emotions for which they are unprepared. So work toward a clear goal for the future, and then seek sage advice about how to get there financially.
About Madison Street Capital
Madison Street Capital is an international investment banking firm committed to integrity, excellence, leadership and service in delivering corporate financial advisory services to publicly and privately held businesses. Over the years we have helped clients in hundreds of industry verticals reach their goal in a timely manner. Our experience and understanding in areas of corporate finance and corporate governance is the reason we are a leading provider of financial advisory services, M&A, and valuations. With offices in North America, Asia and Africa, we have adopted a global view that gives equal emphasis to local business relationships and networks.