IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities.  Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family-owned businesses. The following blog article has been provided by Rebecca Howell of Exit Success Solutions:

What is the Cost of Not Planning for your Business Exit?

Many business owners are so busy working in their business that they neglect working on their business. Exit planning is often not thought about by business owners. Yet, 61% of business owners surveyed stated they need to determine their financial needs. You should always start a business with the end in mind. If you don’t take the time to plan for a proper exit, you will be left with little to no options when the time comes to exit your business. Stats have shown that 70% of business owners are unhappy after they exit their business. Why is this? Most likely due to poor planning or not fully understanding all their exit options and how they can work towards your goals.

A plan does not mean you have to sell. It is really a plan to help you with the day-to-day decision making to better support the objectives of your exit. This process will make you remain laser focused on tasks that matter to the success of the business, your team, and the bottom-line profits. Planning takes time, typically 3-5 years, if not more. The longer you have to plan for your exit the better you will feel.

By not planning you could experience some of the following.

LACK OF CREATIVE OPTIONS

Lack of options leads to not being able to meet your personal and financial goals. Allowing time to plan means that you can explore many exiting options. Finding the one that best matches your core values and goals. Have you thought about how much you need to retire? Planning helps to understand the value gap and how you can get what you need.

WHAT IF SOMETHING HAPPENS TO YOU?

If today was yesterday and you did not show up today, what would happen to your business? Only 16% of business owners stated that the business can run without them. Have you prepared your team enough to continue to run the business without you? We don’t like to think or choose to not think about it at all, but what if something did happen. Do you have a plan for this?

BEING TOLD NO

No one likes to be told no, but when you decide to exit, this could not come at a worst time. You are frustrated and tired and want out. Not properly planning allows an exiting professional to tell you, we can’t sell your company. Then what? Where do you turn? Do you continue to work in a business you don’t love anymore or just walk away? If you do nothing to change your situation, the situation will stay the same. It is said that 80% of businesses that go to market do not sell due to no planning or poor planning. This statistic tells us that people are not prepared and need help.

WALKING AWAY WITH NOTHING

Is this really your best option? You have put many years into your business. It has supported your lifestyle. What will you have to support you after you have walked away? Are you planning to retire or start something new? 100% of business owners will leave their business either with a plan or not. This is inevitable, but the question you must ask yourself, which do I prefer?

WHAT IS THE AMOUNT OF WEALTH YOU ARE LEAVING BEHIND?

An exit will be both a personal and emotional process. Having to navigate what the next steps are and how to properly prepare for them ahead of time is best practice. Not planning could have financial losses that you are leaving on the table, leading to unfavorable terms at closing. Do you know what the tax implications will be? By understanding your exiting options, you can also understand what taxes you will need to pay or how you can save some of your wealth from taxes. Your business is ill-liquid until you can turn it into a sellable asset.

WHAT DOES PLANNING CONSIST OF?

DISCOVERY – Deep Dive into the business operations, owner goals and values.

ASSESSMENT – Mental and Financial readiness. Value growth to better understand your strengths and weakness within the business. Value growth identifies the things within the business to work on most to increase value and reduce risks. This value growth shows you what is working really well in the business and should be celebrated.

EXIT OPTIONS – Identify what type of exiting owner you are. Understanding the difference between sales price and value. The sales price is what the market is willing to pay for your company. Value is what you have to offer the new owner. Value creation happens over time. Buyers and banks look to have 3 years of consistent revenue and profits with no major shifts one way or the other. If a major change happens, they want to see that this new shift has consistency moving forward and is not just a change to make your financials look more appealing. Many companies coming out of Covid did have shifts and now are having to extend their consistency into 2024 or 2025.

STAY OR EXCUTE – This stage allows you to see if you prefer to stay in your business at its improved state or move with executing your exit option. If you choose to move forward with your exit, ask yourself what is next? Having a plan to create a smooth transition between you and the new business owner with consideration for what are you going to do with your freed up time is an important step. At some point through your transition, you might have an identity crisis. This one thing that you have done for so long is still a part of you but no longer defines you. You must understand how to navigate that and come out the other side happy and healthy.

*Stats came for the 2022 BEI Business Owners Survey*

If you have questions relating to the content of this article or the services offered by Exit Success Solutions, Rebecca Howell would welcome the opportunity to talk with you.  Ms. Howell can be reached at (253) 514-0456 or info@exitsuccesssolutions.com.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, accounting, legal, and financial planning communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.