If you’re a business owner and you haven’t taken the time to pre-plan your exit strategy, do it this year. Even if you have no intentions of leaving the helm soon, you might be feeling differently in a year or two. Plenty of entrepreneurs wind up following other ideas and passions that require their full attention. Those who already have mock-up exits in place are ready to make pivots with a full sense of freedom and confidence.
Entrepreneurs tend to be lightning-focused on building and sustaining their businesses. But exit planning? Not so much. That’s unfortunate, because having a well-considered exit strategy can help ensure that the company doesn’t meet a messy, complicated end.
In an article for Harvard Business Review, business founder and author Touraj Parang admits that his failure to prepare for an exit for his first venture cost him quite a bit. However, he understands why dreamers would rather talk about beginnings than endings. When Parang surveyed 30 founders, he discovered that seven out of 10 had given little thought to an end game.
Parang credits his findings to biases toward optimism and a concentration on the present. The problem is that although those characteristics can be beneficial, they can also leave entrepreneurs unprepared for what may be around the corner. As a result, by the time many founders are faced with an exit, they aren’t equipped to make the experience as successful and fulfilling as it could be.
If you’re a business owner and you haven’t taken the time to pre-plan your exit strategy, do it this year. Even if you have no intentions of leaving the helm soon, you might be feeling differently in a year or two. Plenty of entrepreneurs wind up following other ideas and passions that require their full attention. Those who already have mock-up exits in place are ready to make pivots with a full sense of freedom and confidence.
To get started with your company’s customized exit plan, follow these four strategies.
- Learn the exit strategy process.
Before doing any heavy lifting, educate yourself on what exits tend to look like. The roadmap from an exit’s start to end can take up to 10 years, after all. It’s not a fast transition, but it still requires you to put measures in place so you don’t waste time. One of the best ways to find out more about good exit planning is to talk with former owners who had great experiences selling or merging their businesses. Listen to their advice and jot down any pertinent information. You may also want to speak with professional partners like your accountant and lawyer.Having a broader understanding of the exit process should make you feel more comfortable with it. Nothing fuels worry, intimidation, and fear like ignorance. Growing your expertise will enable you to look at exit planning without as much consternation or a feeling of dread.
- Start to visualize your exit.
With all your newfound knowledge, picture your exit from your company. What does it look like? What does a rewarding finish mean to you? Ask yourself the tough questions today because they’ll only get tougher if you never face your exit until it’s in your lap.You may have to remind yourself that every entrepreneur has a different perspective when it comes to a winning exit. For instance, you might want to hand over your business to your child or another relative. Or, you might like the idea of selling it to the highest bidder in a merger-and-acquisition deal. Both outlooks and expectations make sense for different reasons.
The point is that there is no “one way” to exit a company. You don’t have to mirror the way another entrepreneur exited. However, you do need to stay true to your objectives. Spend time projecting five, eight, or more years into the future. What does that future hold? As soon as you’ve connected with your exit goals, you can begin to see the journey you need to take to reach them.
- Begin preparing your business financially for your eventual exit.
The financial health of your organization will play a huge role when your exit occurs. Obviously, you want to be able to negotiate a deal that’s in line with your company’s true worth. Nevertheless, if you’re not careful, the true worth won’t be as high as you want.Greg Alexander, founder of mastermind membership network Collective 54, has seen many entrepreneurs spend too much time scaling their businesses without considering how their financials look to outside investors.
“Exiting normally requires accurate financials for the last three years, and in some cases, three years of audited financials,” says Alexander. “Potential acquirers will ask founders for a quality of earnings report. Yet many founders cannot produce one. And it takes time to do this correctly.”
Want to avoid that problem? Alexander suggests identifying issues early and remedying them before investors come into the picture. For example, address any concerns that have limited forward visibility or too much revenue concentration. When you get to the negotiation table, you’ll be in a much stronger position.
- Be transparent with your company and customers.
Your plans are finalized. Don’t keep them to yourself, though. Share them with your executive-level colleagues first. Eventually, you’ll want to inform your staff and even customers or clients about your expected exit.Even well-known corporate leaders are becoming more transparent about how and when they expect to move on or retire. Case in point: The CEO of American Airlines gave around four months’ notice before leaving. Other CEOs have followed the same path, often championing their successors, whether those successors come from inside or outside the company.
Be aware that many people, especially employees, may have questions and concerns about you leaving the business when you announce your exit strategy. Remain compassionate, open, and empathetic. Try not to take their concern as a reason to doubt your planning, particularly if you’ve done all your homework. Give them the microphone to share their feedback so you can assuage their potential fears—and avoid sudden employee or client churn.
It’s hard to think about one day leaving your business. But it’s bound to happen. Ideally, you want to be able to control all the pieces you can. And that means pre-planning your goodbye long before it comes.
Written by Rhett Power.
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