The new year always brings about a sense of a new beginning and planning for the future. Starting a new diet, hitting the gym or saving more money are all common New Year's resolutions. Oftentimes committing to a small step (throwing out all junk food, buying a gym membership or setting up automatic withdrawals into a saving account) is all that's needed to get the ball rolling in the right direction.
However, if you are procrastinating on selling your business, why wait for the start of a new year. Now is a great time to commit to small steps that will help with the exit planning process. Here are three suggestions to set you on your way for 2021:
Establish Your Exit Objectives
Establishing your exit objectives doesn't need to be rocket science. You don't need a formalized exit planning thesis or a high-priced consultant to help flesh out your ideal outcome from an exit. You just need a pad of paper (or computer for those under 40 years of age) and some quiet time. Jot down notes to the following four questions:
What does an ideal transaction look like?
Do you want to sell 100% of your business and ride off into the sunset? Do you want to find a partner to inject capital and continue to grow the business? Do you want to involve your children? Each scenario will take significantly different paths.
What check size is needed to maintain your desired lifestyle?
This will take some math, but think about your monthly expenses and work backward to figure out the minimum amount needed to fund your lifestyle or future goals.
What will you do after you sell?
Not having a plan is one of the biggest causes of remorse among business owners who have exited according to Bo Burlingham's book, Finish Big: How Great Entrepreneurs Exit Their Companies on Top. Recreation, philanthropy or another business venture may be reasons that motivate you for a change.
When do you want this all to happen?
Establishing the time frame for an exit is important. Remember that it is best to have two years of stable or growing profitability leading into a business sale to maximize value. Also as a guideline, it takes about eight months to a year to prepare and close a deal.
Tell a Trusted Advisor
Sharing your goals with friends and family increases your chance of sticking to your New Year's resolutions. With regards to an exit, I suggest that you share your intentions to start planning with a trusted advisor. This could be your lawyer, accountant, mentor or anyone else whose opinion you value. Tell them about the objectives you have established. Get their thoughts on how realistic your objectives are. Do they know of any other professionals who can help in the process?
Telling a trusted advisor about your exit plan can help provide accountability, clarity, progress measurement and motivation. In my opinion, the biggest benefit of telling someone is that it serves as a kind of catharsis and provides perspective for the entrepreneur. Admitting aloud to another person that your journey as a business owner will someday end makes it real. I am certain that after your conversation, your mind will be filled with thoughts of life after your exit.
When you started your business, it was not with a written plan; it was with a dream of building something great. Similarly, exit planning really begins when you can dream of all the great things that await you after business ownership.
Get a Valuation
In many past articles, I have preached about the importance of business valuations and how it is an underutilized strategic planning tool. If you are tired of my messages from the pulpit, then stop reading now. If not, let me regale you with some thoughts on how a business valuation can benefit the exit planning process.
First, like it or not, the level of cash proceeds received from an exit is a significant factor on whether the sale of your business is realistic at this time. You may think you have an idea of the value of your business, but, without review from a qualified expert, you are only guessing (incorrectly, in most instances). If the level of cash proceeds does not meet your requirements, the direction changes from exit planning to how to increase value.
Second, the right mergers and acquisitions expert will give you a sense of how a sale transaction will be structured and, depending on the underlying fundamentals of the business, help you determine realistic exit options. This step will undoubtedly save you time and money in pursuing the right exit plan. The preparation required in transferring a business to a family member will be different than selling outright to a strategic acquirer. Needless to say, the expected valuation levels will also be different in these two types of transactions.
Exit Planning for 2021
Establishing your objectives, telling an advisor and getting a valuation are three simple places to start your exit planning for 2021. These are high-value activities that will provide additional benefits to your business and give you lucidity on the future. Maybe your exit planning turns into a more aggressive growth plan for your business or opens up an option that wasn't previously explored. No matter what you discover in this process, your business will be stronger and you will better understand your direction going forward.