Exit Planning for Entrepreneurs
Your business is not a conventional job. It’s your baby. Therefore, it’s not surprising that you, like many business owners, are reluctant to sell. But even if you don’t want to sell anytime soon, it’s still essential to think about your departure and exit planning procedures.
What Is Exit Planning?
Exit planning is the process of leaving your business on terms that fulfill your financial goals and meet your timeline. A good exit strategy influences your company’s legal structure, revenue models, investor types, etc.
Entrepreneurs plan everything down to the smallest detail when setting up a business, but little or no attention is often paid to the business owner’s exit. Exit planning considers the entrepreneur’s objectives in valuing the company, its employees, and its position in the market. These factors are used to develop an action plan allowing the entrepreneur to achieve their professional and personal goals when they leave the company.
There are two main reasons for having a solid exit strategy:
- It allows external investors to make realistic calculations of the timeline and likely return on their investment.
- It helps you decide how to exit and lets you decide on a business structure that optimizes business processes.
What Are the Steps?
Quantive suggests a 5-phase framework for exit planning that involves:
- Establishing a baseline value for the business,
- Identifying the needed value to be created,
- Building and implementing value-creation plans to close the gap,
- Preparing the company for an exit, and
- Facilitating the transition.
Phase 1. Define and Measure
Value Scout enables you and your team of advisors to articulate and visualize the difference between your business’s current value and the value it must attain to meet your exit goals. We call this the value gap. One of the critical steps of Phase 1 is to develop a personal financial plan. Writing down this plan gives have clarity about the following:
- What should the value of your business be when you retire?
- What do you need to realize that value?
This phase answers these questions. With this information and an accurate assessment of your company’s baseline value from the Value Scout platform, you will have a clear idea of the gap between your business’s current value and where it needs to be in the future.
Phase 2. Analyze
Value Scout also provides a tool for a guided discovery session. This is the ideation phase in which you, your consultants, and your company’s senior leadership work together through the process of designing best practices and improved methods for your business. Ideally, try to involve as much of the company staff as possible so that everyone has ownership of this process in the execution phase.
Step 3. Improve
Your long-range strategy provides a clear picture of how the annual plan will look. It also enables you to keep value creation at the heart of your planning process. Now, the question is, how will you execute and drive value.
Let’s break this down further. The “Improve” phase has four aspects that will help you improve your business strategy and execution:
- The value-based plan helps you correlate specific initiatives to specific value creation.
- The business operating system helps you understand how to grow structurally and financially to build the needed business value.
- A risk reduction program helps expose any concerns your business may have and some that have not even been considered.
- QA procedures help you remain sure about how the framework works and get the desired outcome.
Phase 4. Re-Assess
This phase serves as the reality check for your value creation plan. When you re-assess processes, you discover what’s working in your favor and what’s not. During this phase, you may adjust the process until you get the desired outcome. Tools like the Value Scout’s Valuation Update and Personal Readiness Assessment may help you assess your goals, determine how far you have come in the value creation effort, and establish a new set of priorities for capturing value capture in the future.
Step 5. Exit
A successful business exit may only take place when all the above steps are taken good care of. A successful business transfer consists of establishing a personal balance sheet to analyze your reasons for selling your business. Once completed, this assessment allows you to act with greater confidence and better justify your decision to sell.
Are You and Your Business Exit-Ready?
Very few entrepreneurs are genuinely prepared to exit their businesses. Their reasons vary. You might be a business freak. You might be unsure of the monetary gain. You may also think the company cannot function without your guidance.
Whatever the reason, it is still essential to consider the possibility of selling. If you suddenly fall ill or die without a succession plan, your family may not be prepared to keep your business running.
Succession planning may also help you determine if you are emotionally prepared to move on and address your concerns about how much money you will reap from selling the business and keeping your business viable after the transaction.
How Can Quantive Help
The Quantive team has over 15 years of experience in valuation, value-creation and M&A advisory. Business owners and advisors lean on that expertise to structure and guide the exit planning process. If you want to start planning for an eventual exit, begin by understanding your company’s current value. Traditionally, that process either requires a lot of math, experience, or a lot of money. Contact us today to get the ball rolling.
