Statistics show that just 39% of adults started saving for retirement in their 20s, 25% in their 30s, 15% in their 40s, and 6% in their 50s. Plus, 50% of adults between 18 and 34 are not saving for retirement at all.
I frequently get asked, “when should I start planning for my transition and exit from my business?” One, two, five, ten or more years? Like employees who delay preparing for their retirement, business owners often wait too long to plan for their exit. The answer to “when” is - the day you start your business.
According to the Exit Planning Institute, nearly 50% of all business exits are involuntary and forced by the 5 Ds: Death, Disability, Divorce, Disagreement and Distress. And only 2 out of 10 businesses that go to market sell. The lack of preparation could be devastating to your family, employees, customers, vendors, and the community in which you operate.
Why Should You Start Planning Your Business Exit Strategy?
You want to improve your business
You’re exhausted from sleepless nights worrying about the challenges in your business
You want to exit your business successfully (when you’re ready), but you don’t know what steps to take to make that happen
It takes time to plan, prepare and exit, typically 3 or more years
Failure to Plan for Your Exit Strategy Can Be Costly
Several years back I met with an owner running a $20M third generation family business. The valuation of the business was approximately $2M. The owner wanted to exit in the next 1-2 years, but he was not prepared. The business was dependent on him for sales and much of the day-to-day decision making. In addition, there were no documented systems and processes in place to easily transition the “how” to what they do to a potential buyer.
After several meetings and discussions about what needed to be done to position the business for a sale/exit and improve business value, the owner, who was in his early 60s, decided he didn’t want to put in the effort to monetize his exit. Instead, he made the decision to dissolve the business in the next year.
The business owner’s lack of planning was going to cost him and those around him significantly. He and his family, after three generations, could not monetize the true value of the business due to lack of planning and preparation. His employees were going to be without jobs and his customers and vendors would be losing a supplier/customer. In addition, the community, to which they provided charitable support, was going to lose out.
Successful Business Exit Strategies Focuses on Building Value
In contrast, I am currently working with a business owner who has a 3 to 5-year timeline to exit and is focused on building value.
What are some of the things he is doing to drive value in his manufacturing and distribution business? And how does that drive value day to day in preparation for an exit in the future?
Developing documented processes and systems and training staff in the consistent delivery of their work
Bringing in-house two outsourced processes to drive value-add production and shifting an increased percentage of their revenue to value-add manufacturing as opposed to pure distribution
Reducing inventory to drive improved working capital
The results speak for themselves! In eight months, the owner has increased business value 1.6X by focusing on value creation in everyday business operations… and he is not done!
Unlocking Business Value is a Process - Not an Event
Focusing on building value day in and day out is just good business strategy. When you incorporate exit planning into your business:
Processes are focused on creating transferable business value today that make exit timing irrelevant
Prepares the owner personally and financially for their next chapter
Creates a roadmap for growth
Creates options for exit
Allows the owner to enjoy the business while they’re in it, not just when they exit
You don’t build a successful exit by focusing on it somewhere down the road. Just like your employees need to focus on their retirement planning as soon as possible, you, as a business owner, need to focus on your exit strategy NOW! Every day, make decisions big or small that will lead you towards a successful exit.
As stated by Hilton Barbour, a marketing and communications strategist, “there is no denying that, as markets become more complex and we face a veritable tsunami of information, successfully steering companies forward takes courage and conviction and, yes, maybe even a dollop of hope.” When it comes to exit and transition planning, that hope is dwarfed by the courage to actually do the hard work required.
"I can't adequately express the tremendous value I've gotten from these sessions." - Tim Daanen, CEO Roundtable member and President of B&D Warehouse, Inc.
Next CEO Roundtable Launching Fall 2024!
Designed for those owners who want to really talk about what's happening in their business and to learn and grow together in a confidential, small group setting.
Monthly AM meetings are held at Journey Consulting in Green Bay, WI.
Limited to 8 business owners - apply early!
Jayne McQuillan, CPA, MBA, Certified Exit Planning Advisor (CEPA) is the owner of Journey Consulting, LLC and author of The Value Journey: How to Drive Profits, Build Wealth, and Exit Your Business on Your Own Terms.
Our firm is focused on providing business owners and their businesses with strategic planning, exit planning, financial expertise, and organizational improvement. We use a holistic approach within all of our services by aligning leadership with business strategy and outcomes.
Schedule your complimentary consultation to begin your Value Journey today!
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