With the recent buzz about Baby Boomer business owners preparing to leave their companies within the next few years, there can be confusion about the different terminology used for this planning concept. For instance, many people believe that succession planning and Exit Planning are one within the same and can be used interchangeably when talking about owners who are in the process of leaving their businesses. However, this misconception can end up leaving you unprepared for one of the biggest financial events of your life.
If you simply are not emotionally ready to sell, if there is still fire in your belly — enough fire to fuel your continued investment in the company — or if you ultimately want to leave the business to family members or employees, then you may not be in a position to sell your business — yet. If you and the business are ready to sell, but you still hesitate, let’s look at typical reasons for that hesitation and what you may be able to do about it.
Why You Need To Know The Value Of Your Business Today Even Though Your Exit Is Years Away
In today’s economy, no one wants to spend money on something they don’t need today. So why do you need an estimate of your company’s value when you don’t expect to leave for several or many years?
You don’t — if you fall into one of two groups:
- Owners who are sure that their business exits are more than 10 years away.
“You’ve got to be very careful if you don’t know where you’re going, because you might not get there.” — Yogi Berra
It is not always easy to interpret Yogi. In this case, perhaps he is advising you to figure out just where you are headed in your business. As you near the time when you will leave behind the daily worries and stresses of business ownership, have you defined your successful exit?
Are you like many business owners?
A majority of closely held and family owned businesses will change hands within the next five years; but many Business Owners may not have taken active steps to transition out of ownership.
Again, if you are like many of our readers, the reasons for failing to plan may be:
- You may have simply been too busy working in your business to be working on it — at least until now.
Many of our coaching clients are in business with partners. They are husbands and wives, brothers and sisters, fathers and sons, mothers and daughters, people who’ve been best friends since nursery school or simply associates who went into business because they happened to have their entrepreneurial seizure together.
In my coaching experience, a successful partnership boils down to two things: communication and structure. You must practice regular, open, non-assumptive, listening-based communication in order to have a foundation of respect and collaboration.
For many owners, the answer to one question determines their eagerness and ability to leave their companies: “How much is my business worth?” This question is indeed critical and answering it is the second step of your seven-step Exit Plan.
Take Ron Nee, the owner of Landscaping Supply Company, as an example.
Ron was ready — and had been for several years — to sell his company but he felt it was worth little more than its net asset value — his industry’s rule of thumb when valuing his type of company.
"When a man does not know which harbor he is heading for, no wind is the right wind." So said Seneca almost 2,000 years ago. Today, speaking to business owners he might likely say, "Exit Planning for business owners must start with knowing your exit goals and objectives; otherwise, failure may be inevitable."
Why is Seneca’s wise counsel so true today? In this first and most indispensable of The Seven Exit Planning Steps™,