2 minute read
The Elephant in the Boardroom: What’s Your Exit Plan?
If you’re reading this, I assume that you either know a business owner, or you are one yourself. If that’s the case, I need to sound the alarm on a big problem: the statistical odds of your business surviving are not good. In fact, for small businesses in the United States, only 20-30% are successfully transitioned past the initial startup generation. You heard that right. When you decide that you want to sell your business, the cards are often stacked against you. This staggering rate of failure comes down to the fact that the average business owner is typically very good at running their business, but almost never spends the necessary time to make a real exit plan.
I hear business owners every day who tell me that they are confident that their business is “worth a lot of money” and that “the right buyer will come along at the right time.” But the fact is, even if the right buyer shows up, the business itself may not be ready to sell. Owners underestimate the amount of work that needs to be done to prepare a business to sell – especially if they plan to sell to a third party. No one in their right mind wants to buy a business that will wither overnight once the seller walks away; if your potential buyer is not convinced that your business can live without you, any potential deal is likely dead on arrival.
Unfortunately, most small businesses just aren’t spending the right amount of time preparing the organization to exist after they are gone. In fact, most owners spend a lot of time making their entire team more dependent on them. One way to see where you stand? Take a good, hard look at your team. Could you do each of their jobs better than they can? If the answer is yes, then you have either hired the wrong people or you have failed to train the right ones. To put it bluntly: you cannot be the central hub if you expect to step away one day.
You might say that you will sell your business to a family member instead, and that’s a fantastic thing to do – one that requires an even more stringent plan. Now, you’re not only preparing the business to function in your absence, you’re preparing your team to transition to new leadership under a person who, up to that point, they’ve likely seen more as a friend or peer than a boss.
Think about it: who wants to work for the kid that used to run laps around the office when mom or dad brought them to work? I’m not saying that the family member isn’t capable – although many will take over businesses they aren’t prepared for – but overcoming that psychological hurdle is an essential part of the exit planning process.
My point is this: don’t treat your exit as something that will take care of itself. The odds are that this business is your largest asset by a wide margin, so don’t leave things to chance. Take care of your business, and take care of the people who work there. Have a plan and write it down. Get input from others. Make changes as you gather more information. Hire a professional who knows how to do this, and listen to their advice.
If you approach exit planning with the same passion and attention that made your business successful in the first place, you and your business have a good chance of succeeding where many others have failed.
Victor Werley CFP, ChFC, CDFA, CVA, MAFF, CFE, CEPA is a financial consultant in Little Rock and the founder of Pinnacle Advisors. Werley has been practicing for over 20 years and has managed hundreds of business transitions for himself and his clients. He has spoken to numerous groups in the business and legal fields about business valuation, how to structure good business deals, and many other topics. He is passionate about small businesses and helping the