It is always gratifying to get third-party validation for topics we cover in this publication on a regular basis. That is why this article title from USA Today a few weeks ago caught my attention:
Entrepreneurs, What's Your Exit Plan?
As we have pointed out before, creating an exit plan for your business is one of the most important strategic concepts you can focus on. Unfortunately, even though most business owners know this, sadly, few follow through and create an organized way to transfer their business to new ownership. Here is how Rhonda Abrams, the author of the USA Today piece describes the importance of exit planning:
When you’re about to launch your great start-up or build a small business, you don’t spend a lot of time pondering how you’ll eventually leave it. An exit plan is a long-term strategy for how you, or others, will extract value from the company you built and transfer ownership to others.
I have bolded those two words above because that short phrase captures the essence of why you need to build an exit plan: Value Extraction.
Many of you have worked for years to build a business from the ground up. Your investment in capital, time, and hard work (not to mention the sacrifices your spouse and/or family have had to make) are things that you need to recoup from the asset you have invested in. Many of you believe that this return comes annually in what you are able to retain after sending proceeds to the IRS. And this is certainly part of your ROI equation.
However, the real payday, when you should benefit from your years of sacrifice, hard work, and diligence is when you transfer your business to a third party either via an outright sale, a partial sale, or some combination thereof.
What we have learned over the years of working with entrepreneurs is this: The more planning you do early, the better the process tends to work out for you. Far too many business owners wait until one of the big Ds is looming on the horizon (or has hit) before even beginning to plan for their exits. Death, disability, divorce, disinterest (burnout), disagreement (partner infighting), and disaster can all force your hand BEFORE you and your business are truly prepared. This is unfortunate and can often lead to disastrous financial results.
The key to avoiding this?
Plan ahead! Human beings often delay planning for events that they either have no knowledge about and/or simply don’t want to face because of emotional issues. Generational Equity, the leader in lower middle-market business sales for the past 10 years, understands both issues well because we deal with them on nearly every client we work for.
The first step is to admit that you will not live forever and that eventually you will need to protect your largest asset and retain your investment via a third-party transfer. Secondly, once this is faced, get all interested parties involved in the business, especially any partners you have, to meet and begin to outline how and when you want to exit.
This is where most folks really fail. When you have a partner, discussing the idea of your personal, business, and financial goals can be quite time consuming. Sadly, because of this, we see attendees at our seminars who have never had a frank discussion with their partner about this topic at all. Here is why Abrams believes this is so important:
If you have a business partner, you certainly want to discuss your exit strategy with her or him. One of the messiest business dissolutions I’ve seen happened because one founder dreamed of building a company worth millions of dollars to sell, while the other hoped to build a modest business she could run for the rest of her life. They never shared their exit goals, and, not surprisingly, they quickly clashed over every expenditure and strategic decision.
Again, the bolded section hits the nail on the head: They never shared their exit goals. Do NOT make the mistake of assuming that your partner, perhaps someone you have known and worked with for years, will share your exit ideas/timing.
Several years ago I was meeting with two partners in a business, going over our process and how each step would build upon the other. As we always do, in order to understand the financial needs of our clients, we turned the discussion to their individual post-deal closing goals. Both were actually surprised to learn for the first time that they had widely divergent personal desires.
One wanted to exit 100%, retire, and do volunteer work for the first time in his life. The other wanted to reduce his personal risk via a partial sale and stay with the company another 5-7 years. Because they were both so busy running a fairly large company with operations on both coasts, they had never sat down together and spent time talking about their futures. Obviously, knowing this information helped us to craft a transaction that could meet both of their needs.
The point to all of this is plan ahead. If you do and you sell when the business and the market are ready, you could reap far greater financial rewards than if you wait until external circumstances force your exit. Keep in mind that planning in advance can give you access to multiple options in terms of buyer types, deal structure, and valuation. Don’t make one of the major exit planning mistakes and ignore your business’s future.
As I mentioned, one of the issues affecting your ability to plan for an exit is a lack of knowledge. Unless you have already sold a company, you have no idea how to proceed. Because of this, and knowing that over the next 15 years we will witness the largest transfer of generational wealth in history as baby-boomer business owners retire, we conduct no-obligation, educational, M&A conferences throughout North America.
These are extremely beneficial to business owners. An investment of a few hours of your time will provide you with a significant body of information that you can go back to the office the next day and begin to apply in order to position your company for your eventual transition.
To learn more, either call us at 877-213-1792 and ask to speak to one of our Senior Business Advisors, or email us at firstname.lastname@example.org and we will be glad to respond to any questions you may have.
We end today with the original question: Entrepreneurs, what's your exit plan?
Carl Doerksen is the Director of Corporate Development at Generational Equity, part of the Generational Group.
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
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