A few of my friends are business owners that are now finding there at that age where their business has matured, like them. It’s still profitable and able to sustain a nice lifestyle and it’s still fun to work there too. The children have grown up and left home so discretionary spend is now spent on more elaborate trips overseas, i.e. it’s being spent on them not the kids, and those trips are becoming more frequent. Without knowing it they are already changing their lifestyle to life after work, and they like it.
You may ask, “Why would you think of an exit strategy when you’re still enjoying yourself in the business?” Well, you need to think of it this way – your business is an asset, one in which you have poured a lot of time, energy and invested money in over the years. While it may continue to support your current and immediate lifestyle, focus now should be on increasing its value so that when the time comes, you are able to take full advantage of the additional wealth that brings, to then fund the next chapter or venture in your life.
Planning for a business exit is commonly overlooked and yet it plays a key role in determining the strategic direction for a company. So it should be prominent and should involve business owners, their heirs should there be any, or their successors so not to limit the options that present themselves in the future.
Studies suggest that exit strategy and succession planning are rising in profile and importance, and in the things business owners need to and want to focus on. The timeframe can’t be immediate, instead owners need to factor it into a medium term game plan and strategy. A 3-5 year horizon is reasonable and achievable.
So how would approach it?
Planning needs to include a review of your business through the eyes of a prospective buyer. That can often raise a few eyebrows on what needs to change or improve, or even what’s missing altogether. A plan focused on improving the business and its value becomes a key ingredient for the remaining years of your involvement.
The focus going forward is through a proper plan and strategy for protecting and improving the profitability and potential of the business.
A structured process that gets the results, gets agreement of the parties, and provides focus, clarity and transparency, is needed. The goal being to grow the value of the business and reduce the risks associated with any transition.
Also, to ensure a smooth transition for both management and owners of the business; onto future owners whether they be family, existing management or external buyers. It’s important that both sides win in the transition process.
But what does that mean in practical terms?
As mentioned above, it’s about providing focus, clarity and transparency. In practical terms this means accounting for the following:
- Define the timing of your exit and the transition path.
- Who is involved now and who will be involved on exit.
- Agree what your financial expectations are on exit.
- Clearly define the management responsibilities for your successors especially if family / existing management are involved.
- Agree key financial KPI’s and milestones that are to be used and measured against from now until exit.
- Build a business improvement plan that is focused on delivering those key KPI’s and milestones.
- Establish a board of directors, or if one already exists, make them responsible for ensuring the plan is properly implemented.
Investing in the expertise of others is key to getting the most out of the process and ensuring it’s managed properly. Remember, do it right, plan and execute to plan and the costs of managing the process becomes a smart investment in your future. Contact us for a quick chat to see how you can start the process.