The importance of planning for your business exit
Updated: Aug 4
Why is it important to think about the day when you will exit your business? In addition to exiting there are also a number of routes to exit. These may include selling outright, merging with another company, transferring to family or another entity, or liquidation. It may be said that next to their homes a business is one of their biggest assets. So why not plan how to monetize that asset when you retire.
This short article is not meant to answer all the questions around business exits. It is a teaser to get business owners thinking about the future of their businesses.
Some of the time business owners are able to build a business that is worth millions but they do not consider how they will turn those millions into cash when they decide to sell. Unfortunately it is often the case with owner managed businesses, where most of the value is tied up in them owners relationships, expertise and IP. Why is this the case? It is because owner managers often perform many or all of the task in the business. The general management, quoting, invoicing, networking and other core business activities are a few of the tasks that owners often tie themselves into and when they wish to sell the business the knowledge and expertise is not easily transferred. This can either lead to the owner being tied in contractually for a few years after the sale or may result in a large discount being applied to the value of the business.
So how can this be avoided? The first place to start is by delegating your duties and responsibilities. After all the owner should not be doing everything in the business. Although it can be hard as your instincts say that you are losing control of your business. So this relinquishment can be done at a pace that is comfortable. Employees are often itching for additional responsibility and you will be surprised by how capable they are.
As you have more time on your hands you will also have the ability to start transferring your knowledge to key employees in your organisation or to transfer that knowledge into writing in the form of manuals and Standard Operating Procedures (SOP's). The value of these documents cannot be underestimated.
Traditionally in owner managed businesses the owner is the face of the company and the clients deal directly with him/her. The trust that is built up is a personal one and is not necessarily a trust in the capabilities of the company. It is vital if you want to maintain the value of your company and reduce the reliance on yourself that this dynamic is addressed. This may not be an easy task and the correct method of doing this may vary widely from business to business. One method of doing this may be to start introducing other employees to the customers so that they build up trust with someone other than you.
The above approach will not work for all exit strategies. It is vital that one first decides on which route they intend to take. From there you can begin to build a rigorous exit strategy. Start planning early, as the sooner you begin the more value you may be able to lock into your business when you do exit.