Those of us who work with business owners often hear the following responses when we suggest that they create an Exit Plan:
- “Exit? I just want some freedom to do whatever I want, whenever I want.”
- “Why would I even think about selling? I can’t get enough for it in today’s merger and acquisition marketplace, my employees don’t have the cash and my kids aren’t interested.”
- “Even if I could get the price I want, where could I invest and generate a reasonable rate of return or one that matches what I’m getting from my business?”
I find that many owners justifiably consider their businesses to be one of the best “stocks” in their portfolios. They see less risk in keeping their businesses than they do investing in the stock market.
The issue for many owners then is: how do I back away and let others run the business without transferring ownership and control?
The fundamental function of Exit Planning is creating a business that can be transferred to another with minimal disruption to cash flow when the owner departs. Thus you can answer this question by engaging in the Exit Planning process, with no intent of exiting, but of simply to create a business that can operate without you and without disrupting its cash flow.
Traditional Exit Planning can either help you to orchestrate a successful, permanent exit or to forge a path toward an exit without giving up ownership. Or both.
To reach your goal of maintaining ownership while reducing or even eliminating your involvement in the business, you should:
- Establish your (owner-based) on-going business objectives.
- Determine future cash flow needs for yourself and for your business.
- Build a stronger business–one capable of running without you
Not so coincidently, these are also the first three steps in creating an Exit Plan.
Let’s look briefly at each component
First, working with your Exit Planning Advisor, establish your timetable for backing away from your business. Communicate your wishes clearly: What does backing away mean to you in terms of time commitment, emotional involvement, financial guarantees, etc.?
Second, determine the amount of income that you need the business to provide you. Ask members of your Advisory Team to help you.
Third, the characteristics of a “stand-alone” business (one that can run without its owner) are the same characteristics third-party cash buyers look for. A company that can be managed from a distance and has sustainable and increasing cash flow with little risk of nose-diving without its owner at the controls, is a highly-attractive business. It is valuable both to third parties and to the owner who wants to step away.
To create a valuable business, you should have in place critical Value Drivers including:
- Steadily increasing cash flow.
- Operating systems that improve sustainability of cash flows.
- Strong management team.
- A diverse customer base.
The most valuable businesses are those in which the owners are no longer valuable.
Planning to step away while maintain ownership is Exit Planning. The Exit Planning Process provides the roadmap you need to create a business that you can keep or sell. The choice is yours.
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