I’d like you to write down on a piece of paper the number of years from now that you would like to retire. Now, if you’re a business owner, think about what your company will look like at that time. How big will it be? How much in sales will it have? What will its profits be? How much does it need to be worth in order for you to retire in the style of living you want?
And lastly, what is your plan to create the business you just imagined and can you do it in the number of years you wrote down on that paper?
One of the biggest mistakes business owners make is that they don’t create a strategy to exit their business at the time they start their business and then never get around to creating one at all.
Why is it so important to have a business exit strategy? Let me illustrate with a quick story. My father owned a television production company in NYC many years ago. When he was in his fifties, the business was doing quite well and he decided it would be a good time to sell. So he went to his partner and proposed that they sell the business.
His partner said “Are you crazy? We’re doing great! I don’t want to sell now.” So he was forced to stay in the business. About five years later, the industry had turned around and the business wasn’t making the money it used to make. They were struggling and after working many years in the business they were tired. It was at that time my father’s partner said he wanted out.
So they put the business up for sale, but there were no buyers. After a couple of years they received only one offer. The offer was for a small upfront payment with the remaining purchase price paid out of future business profits. Unfortunately, the new owners weren’t able to turn the business around and after about 2 short years they closed the business down and the payments stopped. My father and his partner got virtually nothing for the business.
I don’t know about his partner, but for my father the sale of the business was his whole retirement plan and that went up in smoke.
How could this have been different if they had agreed on an exit strategy at the beginning of their business? Well, we can sit here and play Monday morning quarterback all we like, but I will tell you this, if they had an exit plan they would have been on the same page about when and how to exit their business, they would have been better prepared and more in control of the transition process, and they wouldn’t have had to take any deal that came along.
By planning your exit early in your business you have a goal to work toward that describes what your business will look like in the future. You will also have an understanding and agreement of what the end game looks like so that when the transition ultimately does happen everyone is ready for it.