Exit Strategy Traps To Avoid
Successful businesses are built by owners capable of adapting and competing within their given marketplace. Exiting that business can, however, require an entirely different knowledge base from that required to start and grow your company.
Owners spend a lifetime building their company, and have likely overcome many obstacles along the way. Even with all this experience in growing a business, most owners looking to exit have no experience in successfully exiting one. Surrounding oneself with a strong group of advisors (attorneys, CPAs, and wealth planners, for example) who have assisted other owners in their exits, and have "seen it all before," is essential in crafting and executing a successful business exit.
There are several common "traps" that first-time exiting business owners tend to fall into, often leading to an unsuccessful exit and financial and/or emotional agony. The best way to avoid falling into these traps, of course, is to learn about them, and to plan ways to avoid them. These Key Exit Strategy Traps to Avoid are described below:
1. Believing That an Exit Will Be Easy
Building your business was not easy - it required a plan, and the ability to adapt and compete in your marketplace. Successfully exiting your business could, however, prove even more challenging than the previous decades were in building it up - and holds the fruit of all your work. As stated by Ran One Consulting Group CEO Ronen Shefer, an average of 80 hours are spent writing a business plan to grow a business, while, on average, only 6 hours are spent planning the business exit. Take the time to plan, revise, and execute your exit strategy- it WILL save you time, money, and headaches in the future.
Your skills in building a business are not necessarily applicable to the exit. Therefore, careful planning is required in order to handle this rather complex task – again, business exits are rarely, if ever, easy.
2. Believing That Selling the Business is the Only Way to Exit.
Selling is, in fact, only one of the several exit strategy options available to an owner who wants to wants to step back, or exit entirely, from the business.
Unfortunately, exiting owners without a strong advisory team will often overlook the most effective strategy to meet their needs due to a basic lack of knowledge. Structuring a management buyout, creating an Employee Stock Ownership Program (ESOP), exploring "gifting" strategies, and selling partial company interests to a Private Equity Group are all options which must be explored by an owner and his advisory team to determine the best course of action for the individual owner. Once all options have been explored, an informed exit decision can be made.
3. Procrastination
With so much information to process, it is easy for owners to put off creating an exit plan. The truth is, however, that an exit strategy should ideally be created along with a business plan, and assessed and adapted as necessary over the life of the business. Creating an exit plan will provide an owner with an "end goal" to strive toward through meeting smaller "mini" goals, and allow him or her to envision the ultimate fruits of the labor. If you put off beginning your exit planning now, it may, unfortunately, quickly become too late.
4. Believing That You Can Do It Alone
All too often exiting owners believe that their success in business qualifies them to design and execute their own business exit. Just because you have proven successful in one field does not, of course, mean you will have the same luck in another- or more practically, that you will have more experience and ability than a team of advisors who have encountered all scenarios over decades of work. In building your business, you added experience and personal value in key advisors- why would you act any differently when exiting that business? By building a team, you stand to gain the greatest financial and emotional freedom.
5. Not Putting Personal and Family Concerns in the Proper Context
Business owners often fail to adequately consider their emotional attachment to the business- or to the stature, and time consumption that owning a business entails. Many owners without a plan going forward will balk at exiting as they realize that they will not have a daily purpose or goals to meet. For this reason, many owners will subconsciously avoid the topic of exiting the business – it is a very personal decision. Family members as well may not be prepared for the emotional and financial developments ahead. An honest discussion about potential changes in family roles and responsibilities is necessary when considering whether or not to exit your business at all.
6. Not Taking Taxes into Consideration When Examining all Options
Remember- It's not what you get for the business that matters, but rather what you get to keep. From selling the business outright to a competitor versus other exit options, down to specifics such as IRS filings and transaction structuring, each option you encounter will have its own tax implications, costs and benefits. This is where a strong advisory team, and specifically a tax attorney or specialist in business transactions, is crucial for the successful execution of a properly planned exit strategy- one in which the owner knows before deciding how, or even when, to exit the business which options will provide the greatest after taxes, and after fees, net profit.
No matter where you are in your business life-cycle, creating and routinely adapting a written plan for your business exit strategy is a critical part of planning your exit. Through examining these key exit strategy traps that first-time exiting owners often encounter, you will be able recognize and avoid them during your own exit. Remember that your business is an investment, and as with any investment, you must study and plan in order to create the most financially, and emotionally, profitable outcome.
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Exit Strategy Traps To Avoid
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