Owner Readiness: When to Begin Exit Conversations
Entrepreneurship is hard work. The rewards, challenges, and opportunities reserved for business owners and founders take an enormous amount of effort and sacrifice. Creating a profitable, successful business long-term is no small feat. However, a critical component missing from many entrepreneurs’ playbooks is an exit strategy and the on-going conversations that demystify and facilitate this process.
Owners often think that once they are ready to retire, they can simply sell their business to an eager buyer and sail off into the sunset.
Unfortunately, many of these same business owners are not prepared for a sale. Annual exit conversations are a way for business owners to prepare for the inevitable conclusion of their entrepreneurial efforts.
The Great Resignation has made headlines, but the silver tsunami of Baby Boomers leaving the workforce has already begun. However, while many Baby Boomers are set to exit before the next decade is up, are they actually ready?
According to our friends at the Exit Planning Institute an underwhelming 20 to 30% of businesses that go to market actually sell, leaving about 80% of owners with economic uncertainty—not to mention, ensuring the legacy of their hard work lives on.
Annual Exit Conversations Prioritize Success
For some, succession and retirement can cause hand-wrenching anxiety. But it’s an essential part of maintaining and even improving businesses for short-term operational efficiencies and long-term strategic initiatives. Planning ensures that when you do decide to transfer ownership, your business is ready, too.
Preparing for annual exit conversations should be part of a healthy, standard operating procedure for businesses. These conversations often include key personnel, owners, and family members that are stakeholders in the success of the business. Like an annual check-up at your family doctor, annual exit conversations consider the practical aspects of your business including:
- Current state of the market
- Current state of the business
- Role of key personnel
- Business continuity
A basic understanding of your business’ strengths and weaknesses—in addition to a gap analysis of where and how improvements can be made—helps keep your business posture strong. When it’s time to exit, this understanding helps:
- Preserve your business legacy
- Protect company culture
- Protect the welfare of your core team
- Minimize tax implications
Break the Silence. Start a Conversation.
What is your vision for your business without your presence in the company? Do you hold all the keys to its success? Annual exit conversations are a time of reflection and initiate new cycles of growth in advance of M&A activity. Becoming familiar with this process not only alleviates emotional stress on the owners and key players, it helps prepare your team for open dialogue and a successful transition.
Life is full of surprises, but learning your business is not ready to sell or not worth as much as you think can be emotionally devastating.
Annual exit conversations help you properly develop a roadmap for the successful transition of your business, and they better prepare business owners for the unexpected twists and turns of business and life. Regardless of the scenario, these conversations present an opportunity to guide business owners and their team down a path toward succession, whatever that means to the owner.
Annual exit conversations are about more than merely preparing a business for sale or succession. Having a dialogue allows a business owner to maintain their financial independence while transitioning to the next chapter of their life. It also allows the key personnel to decide what they want their next step to be and how it aligns with the overall company goals.
Timelines vary across sectors, but the selling process can take anywhere from six months to a year and sometimes longer. The proper exit strategy is made easier by ongoing conversations in advance of the business owner’s decision to transition ownership of their business. However, having these conversations in advance is both essential to the success of a high-functioning business and management team and invaluable to the success of the sale.
REAG can better prepare you to focus your attention, drive value while mitigating weaknesses, and maximize strategic resources. Our team works closely with clients to achieve their objectives and maximize the value of their businesses. To learn how we can help you achieve your goals, schedule a discovery call today!