It was said some 2000 years ago that “When a man does not know which harbour he is heading for, no wind is the right wind.” Speaking to business owners today I would say, “Exit Planning for business owners must start with knowing your exit goals and objectives; otherwise, failure may be inevitable.”
Business owners need to form their goals and objectives when considering their exit plan from the business. And let me say – this should not be left till the time that you want to get out. What should an owner’s objectives be and why is it so vital to fix them before taking the next Step?
Two of the most critical Exit Objectives all business owners must face and answer are to determine how much longer you want to work in the business, and second, to whom you wish to transfer the business. The latter may be family members, staff or an external third party.
There is however a need to determine a third, critical, Exit Objective, how much money do you want or need when you leave the business? And, does that money need to be in cash or would he accept a promissory note?
Like many owners you probably have two choices. First, you could retire now and sell the company for cash. Selling to family or staff may find you with problems around them not having sufficient funds and no bank would lend an amount even close to the amount of money necessary to close the deal. By selling now and achieving financial goals, you might have to sell to an outside third party who does have the funding required. An alternative is to sell the company to your family or employees knowing that you may have to wait a number of years to receive the entire purchase price. This situation illustrates why setting consistent and achievable objectives early in the Exit Planning process is so critical.
The three principal objectives common to nearly all business owners (and the questions that must be answered in setting these objectives) are:
- Leaving the business on your timetable. How much longer do you want to remain active in the business?
- Leaving the business financially stable. Think of financial stability as a stream of after-tax income, adjusted for inflation. How much income will you need for the rest of your life after you leave the business? Do you want to be cashed out when you leave the business or are you willing to receive the purchase price over many years?
- Transferring the business to a particular person. To whom do you want to transfer the business? To a child? Key employee? Co-owner? Or perhaps to an outside party who can pay top dollar for the company?
If you don’t answer these questions and thereby set your basic Exit Objectives, you may end up with considerable problems down the track being left without the means to exit your business in style. Your failure to set consistent and achievable objectives can leave you without the means to exit your business as well. If you prefer to “leave your business in style” you must formulate specific, consistent, attainable goals and objectives.
Your Exit Objectives are the foundation for all subsequent planning, or in Seneca’s words, “the harbour you must head for.”Know, however, that many owners may not reach their objectives. Why? Because they may not have a plan to achieve them. They may be too hurried, too focused on their businesses, and they may not know how to go about planning. Many owners understandably lack Exit Planning experience — they may not even know where to start. I suggest you begin your Exit Planning process by working with experienced advisors.
If you would like to know more about planning your business sale or developing a business exit plan then contact Greg Tomkins at Superb Coaching or visit our web site at www.superbcoaching.com.au
