Too many business owners fail to make an exit plan either because they don’t know they should or because they assume it doesn’t apply to them. They believe such measures are reserved for large corporations and enterprises.
The truth is that any and all owners of privately held companies need an exit plan. In fact, you probably can’t afford to not have a business plan.
If You Own a Business, You Need an Exit Plan
For most business owners, the majority of their net worth is tied up in their company. But it’s not just an investment of money. They care deeply about their business, having spent years pouring their heart and soul into it, and want to see it continue on after their eventual exit.
So what happens when you make the decision to leave? How do you access that value you’ve tirelessly worked to build? How do you ensure the company doesn’t collapse once you’re gone?
Without an exit plan, you lack a clear path for unlocking value from the company and achieving your personal financial goals. You also leave no direction forward for the company – no blueprint for it to carry on, continue providing jobs, and meet customer needs.
For a business owner, there are no drawbacks to having an exit plan. But there are several tangible benefits. The two most significant benefits are creating financial freedom for yourself and establishing a legacy.
Create Financial Freedom
Nobody wants to sell their business only to find they still need to work. Maybe you’ll want to continue working, but the goal should be to create enough financial security that you have some freedom and flexibility in what you do after you exit.
However, unlocking that value is just one challenge for exiting owners. The other is maximizing that value. What many owners come to discover only when it’s too late is that many factors contribute to valuation of a company, including the owner.
Think about it: You’ve built and guided this business to success. You are a driving force behind that value of the company. Now you’re leaving, and that’s just one of several factors that can drive down the value. But your exit doesn’t mean you have to accept dimes on the dollar when you sell.
A good exit plan helps you maximize the value of your company ahead of a sale. By starting your planning well in advance, you can help ensure your company is desirable, even without you, while also creating a clear path to attaining the financial freedom you’ll need post-exit.
Establish a Legacy
Money isn’t the only reason people start a business, nor is it their only concern when they’re ready to leave. Building a business involves a lot of hard work and passion.
But what happens when you leave? This is your legacy. Will your partner be able to maintain the same level of success? Will your heirs be able to keep it alive? Will the new ownership do right by your employees?
For many owners, it’s painful to think of their business falling apart after they leave. In fact, it’s so disconcerting that many put off their exit, even though they’re ready to leave.
However, when executed correctly, an exit plan can help you achieve a sustainable business legacy, allowing you to:
- Leave the company in good hands
- Position the company for future success
- Thank and take care of your top people
While those are the biggest advantages to creating an exit plan, there are several other notable benefits, including:
- Exiting on your own terms
- Reducing the risk involved by accounting for as many variables as possible
- Saving time by laying the groundwork ahead of time
- Lowering costs (the typical exit costs anywhere from 30-50% of the business’s value, including taxes)