When should you think about, or be ready for, an exit or a succession plan? Richard Poole shares some advice on formulating a strategy to quit your business.
As a business owner and one that works with many other business owners, Iโve found that most of us donโt have the time or inclination to answer the question of how weโre going to exit our business โ especially when weโre deep in the usual day-to-day running of it.
It seems a luxury that we would welcome with open arms; to sit back and think seriously about.ย However, something else always comes up, and if we arenโt banking as much money as weโd like or need to, then it simply wonโt get considered in any worthwhile detail.
Regardless of whether you have a going concern, a start-up or are at โidea generationโ stage, itโs more common than not for business owners to contemplate an exit strategy only once theyโre ready, or need, to sell.
In simple terms, itโs that hamster-wheel feeling, waiting for that one chance to slow the wheel down just enough to step off and catch our breath, whilst taking in a different view. ย
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What if I canโt step off?
We all need to learn how to make that โstepping-offโ happen or it could be a long (or very short) road.
Imagine yourself standing at the Sunday second-hand car fair, like we used to, with what you consider to be a good car that youโve had for years. Youโve reluctantly placed a โTodayโs Specialโ sticker on the windscreen having been going to the fair for the past couple of weeks with only โtyre-kickersโ for conversation. This particular week, not one passer-by stops to chat or take a look, let alone lift the bonnet.
You start thinking to yourself: โWhen is my buyer going
to come along and how many more Sundays is this going
to take?โ
Hopefully your #1 Asset is not your car, but your business is, or could be.ย More often than not, itโs also our retirement nest-egg. ย
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So what might I need to think about?
In all of the โbusynessโ of business we need a realistic plan. We dream of big valuations, quick exits and the ability to walk out the door and throw the keys to the new owner.
The reality is that although it doesnโt tend to pan out that way, we can think about:
1. ย What is the business worth today and what would we like it to be worth?
2. ย How long might it take to get the business ready to sell?
3. ย What might it cost to get the business ready?
4. ย Who should I speak with about starting the process?
5. ย Who should I work with to implement any necessary changes?
6. ย Who would be interested in the business?
7. ย How long might it take to go through due diligence with a potential buyer?
8. ย How long will the actual sale process take once negotiations begin?ย
9.ย How long would a transition period be in allowing me to 100 percent leave the business?ย
10. Whatโs my health like? Whatโs my resilience, my sense of reality, and my financial needs in the meantime? What are my familyโs needs? Whatโs the state of my insurance policies to cover anything unforeseen? In effect, whatโs my โlifeโs runwayโ from here on in?
These are all important points. However, the reality is that unless we look at those things grouped in Point 10, we probably wonโt make any moves towards having a plan. ย
Exiting a business can either be on your own terms, or someone elseโs if there is a financial issue or if something unplanned happens to you.
For me, using Point 10โs theme to get our business in the best shape possible means that weโll be ready to move in any direction tomorrow โ whether itโs towards growth, change, scale, attracting capital or a partner, selling, or commencing a succession plan.ย
But with around 500,000 SMEโs in New Zealand, thatโs a lot of competition to be one step ahead of. Give yourself the options that you deserve.
Where do I start?
Extracting the intellectual property (IP) from a business ownerโs head via a business review and getting this securely documented is fundamental. Seeking to do the same with a manager is trickier as it might scare them into leaving (unless of course youโre contemplating a succession plan involving them).
Your review and plan checklist should include the following headings:
โข Goals and Timeline.
โข Risk and Insurances.
โข Value Proposition.
โข Asset Creation.ย
โข Relationships.
โข Building Communities.
โข Marketing and Communications.
โข Technology.
โข Operations/HR.
โข Revenue.
โข Capital.ย
โข Governance/Management.
If you were to ask again: โWhen should I think about (or be ready for) exit or a succession plan?โ the answer might be now!
Yes, it may create a whole lot more work for you, but you can decide whether you have the energy to be involved in making any necessary changes that come out of the review. ย
Your decision will affect the businessโs value but at least if youโve done the groundwork, you can elect to be involved or simply package this up as a โblack boxโ of value that any potential purchaser might see as the way to quickly grow what they are buying.
Donโt be afraid to seek help. We all need it and we canโt be experts in everything. Itโs not a sign of weakness.ย ย
We all need accountability to make things happen.
We all wish to minimise unhealthy stress. A business
review will be an investment but what might the cost be
of not investing?ย
It might just be a better option than standing at that car fair for another month (or three) of Sundays. Good luck! ย ย
