Exit Planning: A Process NOT an Occurrence

Successful leaders of companies are often said to be visionaries. The pioneers who have empowered their companies and employees with objectives and values from which the companies were built. Why is it so often that these so-called visionaries lack the sagacity to treat exit planning as a multi-stage process as opposed to an occurrence?

According to a Financial Planning Association(FPA)/CNBC poll released in April of 2015, 78% of small business owners plan to sell their businesses to fund their retirement. The same survey determined that the funds received from selling said businesses will be needed to account for 60-100% of the selling business-owners’ post-retirement needs. However less than 30% of the selling business-owners have developed an exit plan. Business owners have worked years in perfecting their crafts in order to provide a sustainable source of income, but they have also neglected accounting for their financial needs after retirement. It is important for business-owners to treat exit planning as an ongoing process; one that should begin in the development stages of starting a business, continue through the expansion years, and conclude after a business-owner secedes to pursue a new project, interest, or retirement.

Entrepreneur magazine highlights the following four important steps involved in the development of an exit strategy:

1.     “Time the sale” – Timing is key. We hear this over and over again applied to any topic, and for good reason. Timing the sale of your company will be variable as it is important to consider the type of company you own, the growth pattern of company revenue, and the longevity of your business. Discovering patterns in the growth of your company is important. This will allow you to easily explain your company to a prospective buyer, which will in turn aid in the effectiveness of your sales pitch. Discover the trends and develop a timetable for sale.

2.     “Get your financials in order” – Any (intelligent) buyer will conduct a comprehensive due diligence process on a company’s finances before pulling the trigger on an offer. The more accurate, detailed, and easy to follow your company’s financial statements are, the easier it will be for a potential buyer to investigate. Bad bookkeeping will stop even a profitable company with excellent growth potential from receiving an offer.

3.     “Develop standard operating procedures” – Acquirers of businesses will always prefer a business that has standing operating procedures in place to one that does not. A buyer wants to step into a fully functioning business with a smooth transition. Complex procedures can scare off a buyer, so it is best to keep it as simple as possible.

4.     “Remove yourself from the company” – Often times business owners maintain a functional role within their business. It is important during the sale of a business that the owner removes himself as the brand of his/her company. This will make it easier for the buyer to step in. This process involves providing the buyer with a list of responsibilities the owner takes on, introducing the buyer to clients of the company, and updating the buyer on any information vital to the functionality of the business.

Remember, exit planning is a process. Do not be caught flat-footed, as the sale of your company is likely pertinent to the development of your next pursuit. Be prepared, and keep the steps above in mind.


                              -Clark Mantini, Private Equity Intern at Exit Plan Capital