It is always gratifying to get third-party validation for topics we cover in this publication on a regular basis. That is why this article title from USA Today a few weeks ago caught my attention:
Entrepreneurs, What's Your Exit Plan?
As we have pointed out before, creating an exit plan for your business is one of the most important strategic concepts you can focus on. Unfortunately, even though most business owners know this, sadly, few follow through and create an organized way to transfer their business to new ownership. Here is how Rhonda Abrams, the author of the USA Today piece describes the importance of exit planning:
When you’re about to launch your great start-up or build a small business, you don’t spend a lot of time pondering how you’ll eventually leave it. An exit plan is a long-term strategy for how you, or others, will extract value from the company you built and transfer ownership to others.
I have bolded those two words above because that short phrase captures the essence of why you need to build an exit plan: Value Extraction.
Many of you have worked for years to build a business from the ground up. Your investment in capital, time, and hard work (not to mention the sacrifices your spouse and/or family have had to make) are things that you need to recoup from the asset you have invested in. Many of you believe that this return comes annually in what you are able to retain after sending proceeds to the IRS. And this is certainly part of your ROI equation.
However, the real payday, when you should benefit from your years of sacrifice, hard work, and diligence is when you transfer your business to a third party either via an outright sale, a partial sale, or some combination thereof.
What we have learned over the years of working with entrepreneurs is this: The more planning you do early, the better the process tends to work out for you. Far too many business owners wait until one of the big Ds is looming on the horizon (or has hit) before even beginning to plan for their exits. Death, disability, divorce, disinterest (burnout), disagreement (partner infighting), and disaster can all force your hand BEFORE you and your business are truly prepared. This is unfortunate and can often lead to disastrous financial results.
The key to avoiding this?
Plan ahead! Human beings often delay planning for events that they either have no knowledge about and/or simply don’t want to face because of emotional issues. Generational Equity, the leader in lower middle-market business sales for the past 10 years, understands both issues well because we deal with them on nearly every client we work for.
The first step is to admit that you will not live forever and that eventually you will need to protect your largest asset and retain your investment via a third-party transfer. Secondly, once this is faced, get all interested parties involved in the business, especially any partners you have, to meet and begin to outline how and when you want to exit.
This is where most folks really fail. When you have a partner, discussing the idea of your personal, business, and financial goals can be quite time consuming. Sadly, because of this, we see attendees at our seminars who have never had a frank discussion with their partner about this topic at all. Here is why Abrams believes this is so important:
If you have a business partner, you certainly want to discuss your exit strategy with her or him. One of the messiest business dissolutions I’ve seen happened because one founder dreamed of building a company worth millions of dollars to sell, while the other hoped to build a modest business she could run for the rest of her life. They never shared their exit goals, and, not surprisingly, they quickly clashed over every expenditure and strategic decision.
Again, the bolded section hits the nail on the head: They never shared their exit goals. Do NOT make the mistake of assuming that your partner, perhaps someone you have known and worked with for years, will share your exit ideas/timing.
Several years ago I was meeting with two partners in a business, going over our process and how each step would build upon the other. As we always do, in order to understand the financial needs of our clients, we turned the discussion to their individual post-deal closing goals. Both were actually surprised to learn for the first time that they had widely divergent personal desires.
One wanted to exit 100%, retire, and do volunteer work for the first time in his life. The other wanted to reduce his personal risk via a partial sale and stay with the company another 5-7 years. Because they were both so busy running a fairly large company with operations on both coasts, they had never sat down together and spent time talking about their futures. Obviously, knowing this information helped us to craft a transaction that could meet both of their needs.
The point to all of this is plan ahead. If you do and you sell when the business and the market are ready, you could reap far greater financial rewards than if you wait until external circumstances force your exit. Keep in mind that planning in advance can give you access to multiple options in terms of buyer types, deal structure, and valuation. Don’t make one of the major exit planning mistakes and ignore your business’s future.
As I mentioned, one of the issues affecting your ability to plan for an exit is a lack of knowledge. Unless you have already sold a company, you have no idea how to proceed. Because of this, and knowing that over the next 15 years we will witness the largest transfer of generational wealth in history as baby-boomer business owners retire, we conduct no-obligation, educational, M&A conferences throughout North America.
These are extremely beneficial to business owners. An investment of a few hours of your time will provide you with a significant body of information that you can go back to the office the next day and begin to apply in order to position your company for your eventual transition.
To learn more, either call us at 877-213-1792 and ask to speak to one of our Senior Business Advisors, or email us at email@example.com and we will be glad to respond to any questions you may have.
We end today with the original question: Entrepreneurs, what's your exit plan?
Carl Doerksen is the Director of Corporate Development at Generational Equity, part of the Generational Group.
The information we learn from customers helps us personalize and continually improve your experience at gencm.com. Here are the types of information we gather.
Information You Give Us: We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice. Our computer system protects personal information using advanced firewall technology.
Information from Other Sources: For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Capital Markets LLC may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Capital Markets, L.L.C. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Capital Markets LLC at is office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
INFORMATION ON THIS WEB SITE IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Capital Markets may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Capital Markets does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Capital Markets will be deemed NOT to be confidential. By sending Generational Capital Markets any information or material, you grant Generational Capital Markets an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Capital Markets is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Information Generational Capital Markets publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Capital Markets intends to announce such products, programs or services in your country. Consult a Generational Capital Markets representative for information regarding the products, programs and services which may be available to you.
Generational Capital Markets makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Capital Markets web site, please understand that it is independent from Generational Capital Markets, and that Generational Capital Markets has no control over the content on that web site. In addition, a link to a non-Generational Capital Markets web site does not mean that Generational Capital Markets endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Capital Markets BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Capital Markets.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.