On average, 78% of business owners* have no transition plan in place. Are you one of them?
Illness, death, for a forced exit can cause a successful business to go from thriving to floundering virtually overnight. A lack of succession and transition planning can leave employees out of work. Likewise, families can lose a business they built from the ground up.
To avoid this type of scenario, we strongly encourage you to have a transition plan in place—and that includes an exit strategy.
What Is an Exit Strategy and Do You Need One?
An exit strategy is a formal framework for how you want to end your involvement with your business. You have options: Do you want to run your company until the day you die? Do you want to sell now and retire? Or do you want to continue to grow your business and eventually hand it off to others who can take the wheel?
It can be intimidating to consider your exit strategy, but it’s absolutely critical if you care about the long-term wellbeing of what you’ve built, your community impact, and your legacy. As the saying goes, if you don’t choose your exit strategy, it will be chosen for you.
Creating a Successful Exit Strategy: 3 Steps
The process for creating an exit strategy varies from client to client and can be quite complex, but generally speaking, you can think of an exit strategy as having three basic steps:
Step 1. Assess
The first stage involves assessing the current state of your business. A business valuation can help you identify the value of your business and if done early enough, prepare you to grow your business so the business owner is personally and financially prepared for the future.
To ensure success, exit planning is nested within Northspan’s broader Preferred Value Acceleration Method. It combines a set of proven facilitation methods to guide you toward clear goals and feasible, achievable action steps. The specific scope varies depending on your needs, but it can equip you with three tools:
- Personal, Financial, and Business Assessment
- Initial Business Valuation and Reassessment
- Prioritized Business and Personal Action Plan
Each deliverable will be tailored based on the unique qualities of your business, the business environment, and other factors.
Step 2. Decide
Based on the present reality, do you want to continue to grow your business, or exit now?
VAM includes a 90-minute workshop to help you and key stakeholders explore your exit options and the pros and cons of each. This is followed by a 1-hour workshop called “Keep or Sell?”
It might sound like a moment of truth… and it can be! But there’s no need to stress: If you’re not ready to make a final decision, you can revisit the outcomes of these workshops and continue to reassess your business valuation on a regular basis. For example, we recommend revisiting the Keep or Sell Workshop conclusions every 90 days, in addition to conducting a Business Valuation Reassessment each year.
Step 3. Implement
Whether you choose to keep or sell, VAM can also provide you with a plan for next steps. If you choose to keep and grow the business, we can set in place future facilitations to help the business achieve more and perform better.
We recommend creating an action plan with timelines, milestones, and dates for check-ins to keep a pulse on progress—and to keep everyone involved accountable.
Top Tips for Exit Planning
Don’t be afraid to maximize your profit. Often, businesses try to hold profits down to avoid high taxation. During the VAM process, you might find yourself considering a shift to bring in more cash flow and raise that bottom line.
We often encourage this pivot. The value it builds in your business will likely outweigh any increases you face in taxes. Your goal should be to retire comfortably and think about how the value could translate to a new owner.
When approached this way and done correctly, your exit strategy is a really good way to retain wealth for the business owner and for the local community and region as a whole.
Ready to Plan Your Transition?
Northspan’s Elissa Hansen and Zack Filipovich are certified exit planning advisors (CEPA) through the Exit Planning Institute. We can help you decide whether VAM is right for you and assist with each stage of the process—for more info, reach out.
For more insights about succession planning in the Northland, check out this Almanac North segment with Northspan’s Zack Filipovich discussing the best time to start transition planning, special considerations for Baby Boomers, and other tips.
* 2013 National State of Owner Readiness Survey