Opening the Exit Door
The Biggest Choice You Never Planned on Making
By Joe Liggett
The Meat of the Matter
Every entrepreneur faces the uncomfortable task of letting go. As entrepreneurs we often fail to recognize the implications of holding on for too long, and the inherent risk that this brings to the current and future success of the organization. It is a humbling concept, and one that is too often avoided.
Exiting a business is similar to grilling a steak. Exit too early and some meat will be left on the bone because it was not sufficiently prepared. Wait too long and all of your hard work has yielded an undesirable result that is tough to swallow. However, when armed with the right knowledge and tools, you will finish when the temperature is just right, take some time to rest, and enjoy every bite.
As Entrepreneurs, Everything We Want is on the Other Side of Fear
Why is it that many entrepreneurs delay the succession planning process? Well, because it is not a steak, it is their life’s work. Fear of the unknown drives many entrepreneurs to avoid and undervalue a professionally designed and executed succession plan. In doing so, they are abandoning the courage and rationale that is at the core of what makes an entrepreneur successful in the first place.
One thing is certain – we are entering into what will be the largest and most impactful change of control in business history. According to the Family Firm Institute, over 7 million U.S. businesses are currently owned by a member of the baby boomer generation, with the majority being family owned. Of all ownership types, family-owned businesses carry the most risk when changing hands, and therefore require the highest level of service and expertise from a professional succession and exit planning firm.
A Plan is Only as Good as Those Who See It Through
Always plan ahead, for it wasn’t raining when Noah built the ark. If you are giving thought to exiting your business, it is critical to find a professional firm with the necessary capabilities, including:
- A keen focus on the relational aspects involved in the transfer of any business. This is of critical importance, and of even greater importance to family businesses.
- Autonomous towards the proposed succession strategy, with unbiased intent. It is a red flag if a succession planning firm proposes a solution at the onset. Always seek a firm who requires a deep discovery at the beginning of your engagement. This is necessary to produce a tailor-made solution for your business – not a solution that ensures the largest pay day for your succession planning firm.
- Experts with a successful track record in deploying all exit strategies, not just one. These include a third-party sale, ESOP (Employee Stock Ownership Plan), interfamily/generational sale or transfer, and executive buyout, amongst others. If a firm cannot design and execute on each of these strategies, chances are they have direct benefit from certain approaches.
- The inclusion of a multi-faceted and proprietary financial modeling software. You must be able to see an exhaustive financial picture that marries your personal financials with those of the business (not just estimated sale value) and other businesses that you may own. This modeling should also include ancillary metrics such as charitable endeavors, tax implications, tax mitigation strategies, and more.
- The ability to provide in-house valuation services to ensure that your business value will take you from I need more to I have enough through life expectancy. If not, the firm must be capable of assessing the necessary strategy(s) to increase value in the near term.
Tomorrow is Not Promised Today
Exiting your business is not the end of the road. It is the beginning of the open highway. An entrepreneur’s ability to recognize this and take the necessary steps to ensure that they exit on their own terms is one of the most impactful decisions within the life cycle of business ownership.
“Often, when you think you’re at the end of something, you’re at the beginning of something else,” Fred Rogers once said. As entrepreneurs at the end of our career, what “something else” will be is largely up to us. However, the steps that we take today will ensure that tomorrow is our creation.
Now…stop reading and go check on your steak.