Whether you plan for it or not, you will eventually exit your business. But like most owners, you must concern yourself with running your business today. As busy as you are, I encourage you to take a few minutes to see how a well-planned exit can have a very positive impact on your current business.
About 70% of the six million privately held businesses in the United States have more than one owner, and the average number of owners per business is nearly three. Practically all of them want to successfully exit from their businesses one day, and most of them will find that their path to exiting successfully requires aligning their exit plans with those of their co-owners. This is where the challenge begins.
Much of the conventional wisdom suggests you should start serious planning no earlier than five years before you are ready to exit. This misperception is so common; we call it the Five Years’ Fallacy. This approach gets owners in more trouble than perhaps any other mistake.
There are four major flaws with this approach:
1. Selecting the ideal business entity is an important consideration, especially in the event of a sale, because the type of business entity may greatly impact taxes.
You believe your business would grow faster, if you had more cash. Or, perhaps you’d buy out that partner who’s not in sync with the direction the company is going in, if you had more cash. Or, perhaps you’d take some cash home to diversify your wealth and sleep better at night, if you had more cash. Whatever your specific need is, perhaps you’d do it—if you had more cash. That’s just the thing though. How do you get more cash to accomplish your business needs, without giving up too much in return, or taking on more risk than you should?
Time after time, client after client, research study after research study, the answer remains the same—business owners’ number one goal at exit is to achieve their financial win, whatever amount that might be. In our experience, the most common financial goal is to reach financial freedom, which we define as getting to the point where working is a personal choice, not a necessity. Money cannot buy happiness, but business owners who have successfully reached financial freedom seem to smile on a regular basis.