When do I start my exit planning and how much is my company worth? We have gotten these questions for decades, especially from Baby Boomers. Sometimes it comes across casually: “So what do you think, should I start my exit plan 2 years ahead, maybe 3 years ahead?”
They often ask knowing the answer. They are trying to make themselves feel better because they haven’t created an exit plan and they know they should have started it long ago. They don’t know what their company is worth, but often get some outsized value stuck in their mind. If I respond that waiting until 24 months ahead of sale is ok, they can let themselves off the hook for not having an exit plan or succession plan in place.
- Some say they are tired and would like to get out. They do not want to put in much more time or invest in building the value of the company. Yet, they are not satisfied with what it is worth today.
- Some in family businesses have put off building a succession plan for a generation-to-generation transfer. They may feel they have time, or they may feel that their children (children often in their 30’s and 40’s) are “not ready yet”. They may fear losing an income stream as they transition out of the business.
- Some are simply working the business, taking no time to develop an exit plan that could dramatically increase the value of the business when it comes time to sell.
If you do have just a few years, there are a number of things you can do to optimize your exit and get everyone on the same page. But “2 – 3 years” is NOW, especially if you are a business owner in your 50s, 60s, 70s or older. You have heard when talking about stocks that you can’t time the market. It’s the same thing for your business. And remember, the sale process itself can take 6 or 9 months to a year or more from start to finish.
With all of what’s going on out there in the world, a plan is critical to monetizing your life’s work! A sudden downturn could keep you captive in your business for another few years as you try to rebuild.
- Do you know the value of your business? Don’t rely on a value that is some industry multiple or that sounds reasonable or what you’d like. Get professional assistance. This is your life, livelihood and retirement.
- When do you want to be completely or mostly out of the business?
- Can you wait out the next downturn? If you are thinking of a 2- to 3-year timeframe, what if the economy slows down? Can you wait another few years to rebuild the value of your business? What do you really need out of the sale?
- Do you have a solid plan for what you will do after your exit?
The message is simple: work with your advisors now to get a good understanding of your situation. The more informed you are, the better positioned you will be to create an exit plan that works for you, maximize value and minimize risk. You will leave the legacy that you want, not what others want. You will create your future!
Need to Get an Idea of Where You Stand on Business Value and Your Options?
David Shavzin, CMC