We are increasingly being approached by businesses where the directors are beginning to think about life beyond their business and are planning their exit.
Interestingly, nearly all of the situations have three common and sometimes painful underlying issues:
(1) A lack of alignment amongst the directors
(2) No exit vision and goals (unsurprising given the above)
(3) No business plan consistent with grooming the business for an exit
Lack of Alignment:
This is the crucial issue and a surprisingly common problem! At the worst extreme is an inability to consider the obvious elephant in the room, characterised by avoiding the subject or fraught conversations. Less obvious, but every bit as damaging, occurs when the subject has been raised but different time-lines and expectations emerge and are not resolved.
Failure to align personal goals leaves the owners impotent as it becomes impossible to develop an effective exit strategy and supporting business plan. The result? Their investment is likely to be significantly under-realised.
No matter how difficult the conversation, a shared and aligned understanding is the essential platform for dealing with the other common underlying issues.
Lack of exit vision and goals:
A fellow speaker at a recent conference commented that “it is never too early to start” planning for exit. We absolutely concur; one of our Pro-actions maxims is to “start with the end in mind”. Taken literally this means that as you start your business, there should already be an end goal in mind. Everything then builds towards that goal. The vast majority of small businesses don’t begin like this, but it is still never too early to start the process.
Getting your ducks in a row:
Careful planning is needed in order to realise the maximum value for the owner. The starting point is always the desired end vision; “what, when, how and how much”. There are many potential exit options (passing the business on to family members, a management buy-in or buy-out, business sale, or simply winding the business down), but these options hugely influence the business plan required to achieve them.
A business where the owner is the business is very rarely saleable or attractive to anyone else. We therefore find that, in most situations, a key requirement is to start separating the business from the owner. Many small businesses are owner-dependent and survival after the owner’s exit therefore depends on the owner’s ability to start stepping away in a controlled manner. Establishing and securing a skilled management team – and then leading them – is a key part of the exit grooming together with creating business processes that are not dependent upon individuals.
A Taxing Business:
Any strategy should involve understanding and planning for a potential tax liability. This area needs careful planning and the involvement of experts. Once again, the sooner the planning begins the better the outcome is likely to be.
Whether total dis-engagement is the desired outcome, via a sale or MBO, or partial disengagement as the owner takes a back seat, an exit requires careful planning. Allowing plenty of planning time will deliver a better the end result.
The starting point is to define what the outcome looks like, ensuring that all the principle stakeholders are aligned. Then build and execute a plan that will secure both the owners and business’ future. And don’t forget to get help and advice throughout the process; it may be key to securing your vision!