Having worked with owners to create successful exits, we know that it is critical to set goals and help you establish three principal exit objectives before moving forward with your Exit Plan:
- How much cash do you need when you exit to support the lifestyle you desire?
- When do you want to leave the company?
- Who do you want to sell/transfer the company to?
The best way to best explain exit planning may be to share an example. Let’s look at an owner who arrived at his exit date without a complete plan to reach his goals.
The owner of a 45-employee plastic extrusion company had long thought of transferring his business to a son and a key employee, but had done little to prepare for that transfer. As tougher economic conditions challenged his company, and he reached his 58th birthday, he decided it was time to retire.
He had established two of the three Exit Plan Objectives critical to all successful business exits:
- Determined he didn’t want to work much longer in the business
- Decided he wanted to transfer the business to a son and a key employee
But what about the third Exit Plan Objective?
How much money does he want or need when he leaves the business? At this point, he had two choices:
- He could retire immediately and try to sell the company for cash—but not to his son and key employee. They had no cash and no bank would lend an amount even close to the amount of money necessary to close the deal. If he wanted to sell today and receive an amount that would support his post-exit lifestyle, he would have to sell to an outside third party with sufficient cash.
- He could sell the company to his son and key employee, but wait six to ten years to receive (hopefully) the entire purchase price.
This example situation illustrates why setting your objectives or goals, understanding how each affects the other, creating a plan, and then acting to reach those goals is so critical to a successful exit.
If you prefer to leave your business in style, which, to us, means leaving your business to the successor you choose, on your timetable and with the amount of cash you desire, you must take time to formulate specific, consistent, attainable goals and objectives.
Don’t be an owner who is too busy working in your company to work on the most important financial event of your business life.