How does Exit Planning focus owners on business success?

In this article I’m staying with the Exit Plan / Exit Planning terminology that I think is generally well understood.  

A decent Exit Plan, from an experienced Exit Planner, would usually incorporate following;

1. Situation Assessment
2. Business (Operational) Analysis
3. Financial Analysis & Valuation
4. Recommendations
5. Action Plan & Timeline 

The owner then goes about running the business and delivering the plan to the planned timetable so when they decide to sell, say in three to five years, the business will sell quickly, for a higher price, as it’s (then) less risky and easier to run for the buyer .

For some percentage of owners who actively Exit Plan (I don’t know the number, but I’ll punt it’s a small fraction of all businesses) everything may well go to plan.

However, the bigger opportunity is to get more business owners to do some form of Exit Planning or components now to make their business more profitable and easier to run.

Here’s where I diverge from the traditional. It's also your reason for investing in Exit Planning with the expectation of a positive ROI in some form .

Traditional Exit Plans that go all in on one outcome, i.e. a high value, orderly, smooth-as-silk sale in three to five years aren’t convincing enough owners. It’s too far away and built on one single outcome (a sale to a third party) and understandable why owners don’t see the investment now. But it’s important to consider how this a missed opportunity for your business.

Here are three potential outcomes you should contemplate for Exit Planning and, hopefully, will convince you to make an investment in the good bits an Exit Plan can deliver;

1. You, as owner, for any number of reasons, including health or personal, can’t continue to operate the business as effectively as you have in past. While there are some insurances you can access help to reduce the impact of some of these risks, you should consider if these options adequately ‘cover you’.

 

2. You, as owner, supported by good advisers and with a commitment to making changes in the business, can find it’s more profitable, less time consuming, less stressful and more enjoyable to run. So much so you might consider keeping it! A common example of this is a combination of simplification (often shrinking headcount) and rationalisation (re-focussing on a core product or service). Or, in other words, making it smaller and easier to run.
   
   So your ‘Exit Planning’ efforts don’t have to be about all out growth. Working out who might go and what business units you should jettison are big calls, but with the right analysis and support can be made confidently.

 

3. A larger competitor, major industry player or private equity-backed operator knocks on your door unexpectedly. This happens all the time. It’s easy, when you’re caught off-guard, to say the wrong things. You can ‘get excited’ and over share or ‘react’ and under share information about your business or personal plans. Outside of the unscheduled visitor being a complete shyster, these initial contacts need to become a key part of your exit planning from that day one, even if the timing isn’t ‘right’.  

 

Here are a couple of resources on Exit Planning to get you thinking, and there is a lot out there!

For me the focus (via my pre-selling service) includes some of the following questions and analysis. It’s a really effective way (compared with a full Exit Plan) to quickly move owners to a robust state of “permanent readiness”;

1. What’s business value today?
2. What are the ‘business units’ and how do they contribute to the total business profit?
3. How can the business be improved and how would that impact business profits?
4. What are the big risks to the business?
5. Are there any big ‘sale blockers’?
6. What do you as owner really want from your business?
7. Where are and how do you bridge these gaps?
8. Who are the natural buyers (or buyer types), including staff?
9. Why might these buyers buy your business and pay more than ‘current’ value.

 

What experts and advisors do you need?

To move forward on your Exit Planning, here are some to the key advisers or colleagues you should engage with.

Any planning around making your business more profitable and a potential sale will also cross over into your personal financial situation.

Starting with the business, key advice you’ll need will include;

1. Business Valuation to assess market value today.
2. Tax Advice to understand, for example, how much tax you would pay on a sale at current market value, or how to restructure for future tax concessions.
3. Management or Financial Accounting to deeply understand how profitable your business is overall and by business unit, and how to prepare credible future projections of profit and cashflow.
4. Subject Matter Experts to assess and deliver business improvements on Operations, HR, Marketing & Branding, Business Finance.

As with any decision to partner (or keep) an expert ‘trusted’ adviser you need to think about;

1. Setting a ‘scope’ of the services you want/need? Avoid paying for advice you didn’t ask for, noting this is not the same as not accepting advice you actually need but may not want to hear!
2. Can they deliver the expert advice you need? Don’t just default to your existing advisers, they may or may not have the specialist advice you need.
3. Are their motivations in alignment with your needs? Does the ‘expert’ really understand your aspirations and plans, and is their compensation for delivering their service aligned to your aspirations and plans? Note, ‘free’ expert advice usually has a catch!

 

At a personal level, the value of your business or its debts, directly impact your personal financial position. What you currently or may in the future get from your business in terms of ongoing profits (and/or salary and other benefits) or from a future sale need to be considered in your personal financial plan, from a competent financial planner.

Beyond the pure financial aspect of any decision to continue to own and run a business (or even sell later) there are personal impacts and trade-offs involving;

1. How much time you want to commit to the business;
2. How much time your nearest and dearest think is fair to commit to the business;
3. How would you ‘spend’ your time if less of it (or all of it) was needed by the business, and
4. How this impacts your;
   1. Relationships with your nearest and dearest.
   2. Personal ego and wellbeing.

Getting to a mutual agreement or understanding with your nearest and dearest is obviously incredibly important, and is often the trickiest of all.  

Do seek out helpful advice, but be smart about who you ask. Having colleagues and other business owners who aren’t part of the family or the business and who get the difficult balance of business and family can be a real help here. 

And be ready for and wary of ‘unprompted’ advice, even well-intentioned, as it can create a lot of extra tension. 

I hope this helps and please reach out if you'd like to have a chat about anything outlined in this article. Michael.