It is Never Too Early for a Small Business Owner to Plan Their Exit
Small business owners dedicate their lives to their businesses. Leaving the security of a paid position, taking the risk to strike out on their own, working long hours, struggling to learn new skills, and missing out on time with family and friends are all aspects of running a small business. The rewards come in the form of being in charge of their career path and hopefully the ultimate sale of their business. In many cases the exit from their business is one of the biggest transactions that a business owner will be involved in (emotionally and financially); it is important to get it right by being prepared.
It is never too early for a business owner to begin planning their exit. The sooner the planning begins the more prepared they will be, the more options can be contemplated, and the more value can be driven from the transaction. Additionally, since this transaction often represents a new phase in a business owner’s life, such as retirement or new career path, it is important to be well informed by preparing well in advance of an exit. Planning for the end in the beginning is truly the best choice, but often is not the case for most entrepreneurs, the sooner this planning begins the better.
Planning begins with a shift in mindset for many business owners. Often business owners see their business as an extension of themselves similar to a child. Studies (like Entrepreneurial and Parental Love – Are They the Same by Halko, Lahti, Hytonen, and Jaaskelainen 2017) show that many business owners do indeed feel a connection their businesses similarly to their children. However, it is important to understand this passion while separating themselves from their business. With a shift in mindset business owners can begin to see their business as an asset rather than an extension of themselves. This will help drive value and will make decisions much easier both while operating the business and as they approach an exit.
Often business owners become exhausted in their management role running their business. When this happens, if they have not thought through or planned for an exit they may make the choice to exit both their ownership position and their management position. However, they may not necessarily be ready to exit their ownership. Distinguishing between their roles and preparing for different exit options could help a business owner realize there are many more options than simply walking away from everything; such as maintaining passive ownership, staying as the chair of the board, hiring a CEO, etc.
Unfortunately, all too often business owners decide that they are ready for an exit and then begin to plan for that exit. This is very inefficient and often becomes frustrating as the owner begins to understand the complexity of determining the best exit option. In order to ensure the most value is gained through an exit, planning must begin well in advance (2 years at a minimum). Exiting a business can be complicated and therefore it is important to have the right team including accountants, lawyers, bankers, and executives. Ensuring the right team is in place takes time and making sure the entire team is on the same page is as important as creating the exit plan.
Fractional Executives can be a great addition to the team who help business owners understand exit planning and help set them and their company on the correct path. Often this begins by ensuring the company documented and used Corporate Charter (Vision, Mission, Values, and Strategy) along with financial systems which can be used to guide and measure the progress. By understanding the personal goals of the owner and how the business will help them achieve their goals a Fractional Executive can use their expertise to ensure a business owner understands their various exit options, define a path to the best suited option, and work within the business to help the owner achieve their vision in an effective manner.
One very effective method is to always have the business ready for the owners exit. If the business owner is always operating as though the business could be sold, they will be able to run the most efficiently, make decisions a lot easier, understand the businesses value, prepare themselves emotionally, and be prepared if something unexpected arises (like an unsolicited purchase offer or an illness). By being sale ready the owner will have shifted their mindset removing themselves from the business which can open opportunities that may have otherwise been missed. It also ensures that they understand the exit process and have the right team in place. Being exit ready does not mean that an owner is actually leaving their business, but it does help reduce stress, workload, and energy needed by the owner.
