Most of us don’t start our businesses with the end in mind. We usually start a business on a hope and a prayer of being successful enough to be profitable and hopefully the business can support our families and our lifestyles. What we very rarely plan for is our exit strategy from our business, especially when we are starting out.
Not having an exit strategy is a serious issue. Studies have shown that 88% of business owners have no exit strategy and between 20-30% of businesses will sell. With such low odds of selling your business, you must have a strategy, because the odds are that it will take you more than a year to sell your business.
There are two main examples of what happens when a business owner does not have an exit strategy. The first example is the owner passes away without an exit strategy in their business. The second example is the person who waits until they are “ready” to sell their business.
You have to first ask yourself, who are you hurting by not having an exit strategy? If you pass away without an exit strategy, then your family is going to be straddled with running a business or trying to liquidate the business in a hurried fashion. When your family tries to sell the business in a hurried fashion, they are surely not going to get top dollar for the business. Also, the odds are that you don’t have a business, but a high-paying job, so that your business cannot survive without you. This scenario is devastating to a family when most business owners would consider their business as their most valuable asset.
The majority of the business owners that I speak with are either in the former category, or they come to me for help and simply state, “I am finally ready to retire”. The problem with the “ready” scenario is that you have usually become disenchanted with your business and are now putting in the least amount of effort into your business, as possible. This is a major problem, because now your business isn’t doing as well as it should be doing and you usually want out of the business as quickly as possible. Are you going to get top dollar for your business if it isn’t doing as well as it should? Are you going to get top dollar if you are desperate to get out of your business? The answer to both of these questions is a resounding, no!
With the new year approaching, now is the time to set a goal to create an exit strategy by the end of the first quarter of 2020. How do you go about developing an exit strategy? Start by setting an appointment with your attorney, accountant, and insurance agent. Let them all know that you want to develop an exit strategy for your business and when you want that strategy finalized. The next step is to understand what your family’s financial needs are for the rest of your lives. Once you have a plan in place, you can begin to execute with the peace of mind that you are moving in the right direction and moving with purpose.
Remember, if you don’t have a strategy for exiting your business, then you are hoping for a positive outcome. If you believe that hoping for a positive outcome is a good way to exit your business, then I would highly recommend that you also employ the strategy of building wealth by buying lottery tickets (this can work, but not very often). The only way to create an effective exit strategy is to plan carefully with your team of trusted advisors. I highly encourage everyone to make exit planning part of their new year’s resolution. Your family is depending on you and so are your employees.
Want to learn from other restaurateurs, bar owners, and hoteliers? Watch the interviews of many successful business people at the Montana Business Vlog on YouTube. If you have any topics or questions to be covered in future articles, would like to discuss the different aspects of business law, or if you would like to receive our monthly newsletter, then please email me at [email protected].