Successful Business Exits Require 3 Dimensions of Readiness

Matt Dimock of International Exit Planning Association is a member of XPX Greater Boston
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After fifteen (15) years of training advisors and working with business owners, the IEPA has been involved with more than 100 exit plans. One of our learnings is that the business owner was better prepared and got a better result from their exit when they engaged in an exit planning process prior to commencing their exit transaction.

At the IEPA we focus on three (3) dimensions of ‘readiness’ for a business owner.

  • First is that owner’s personal readiness for an exit,
  • Next is the company’s readiness for an exit, and
  • Finally, we want to understand if the market timing/readiness is right for an exit.

Starting with #3, market timing, we saw in 2021 that exit activity was an all-time high for lower middle-market ($5mm to $100mm in value) businesses.  As previous newsletter mentioned, this is due to the perfect storm of aging boomers, COVID and a new administration threatening to raise taxes.  For those owners who experienced an exit in 2021, most likely it was at a high value and the seller had leverage through the process.  Markets are not always this accommodating.  The more owners understand market timing, the better prepared they will be for an exit.

Moving to Company readiness we want owners to understand that the exit from their business is materially different from selling a home or real estate, which many business owners think will be a similar process.  Privately held businesses sometimes take years to prepare for an exit.  And, the more time that an owner has to prepare, the better result they will get.

Finally, the personal readiness of an owner is of paramount importance to a successful exit.  We often-times compare the running of a business to the driving of a motorcycle.  The business is the engine of the motorcycle; however, the personal goals of the owner are the steering wheel.  And, while the business engine keeps the ‘wealth’ running and growing, it is the business owner’s personal goals that will steer the business exit in the direction that that owner most wants to go.  For example, if a business owner wants his / her children to take over and run the business, that is where the owner will ‘turn’ the business.  By contrast, if an owner wants to sell for the highest value, the owner will ‘steer’ the company in that direction.

Aside from the exit path that the owner desires, there is also the emotional separation from the business as well as a business owner figuring out how he / she will spend their time in a productive and fulfilling manner away from the business.

An Exit Planning Process Compartmentalizes the Issues for the Owner

Not only is a business exit the largest emotional and financial transaction of most business owners’ life, but it is also very complex – an exit planning process simplifies this complexity for the owner

When a professional advisor / consultant can take an owner through an exit planning process, that owner has the opportunity, over the period that the planning process occurs, to learn about and reflect on their personal readiness, to evaluate the company’s readiness and to understand market timing.  An exit planning process helps an owner become clear on that owner’s goals as well as the exit options available to best meet those goals.

By going through a step-by-step process, the advisor creates the time and space for a business owner to consider what they most want the future to look like for both themselves and their companies (and all involved with both aspects of that owners’ life).

Exit Planning Leads to Better Results for Business Owners and Advisors

In addition to helping an owner gain clarity to transact confidently, the exit planning process also leads to better results.  It is logical that preparation leads to superior outcomes.  However, for a variety of reasons, most business owners do not know that ‘exit planning’ exists as a service.  As a result, many owners attempt exits with little to no preparation and often-times suffer the consequences of a variety of failures along the way.

The advisor who takes the business owner through an exit planning process also achieves a significant victory – i.e., succeeding in assisting an owner navigate the complexity that would have prevented a successful exit.  Given that most business owners work for decades to build their overall wealth in their privately held business, it is the advisor who can assist that owner who wins the role of Most Trusted Advisor and earns additional business and a very strong relationship with that business owner.

Concluding Thoughts

Business owners can level the playing field of many of these disadvantages and challenges that they face with an exit by seeking out exit planning professionals and engaging in an exit planning process.  When business owners invest the time and money to prepare themselves for an exit, experience shows that better results follow.

Updated: March 29th, 2022

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