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Wealth Beat News > Small Business > How Leaders Can Begin Business Succession And Exit Planning
Small Business

How Leaders Can Begin Business Succession And Exit Planning

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Last updated: 2023/09/26 at 2:13 AM
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Dr Craig West is the founder of Capitaliz and has been working with business owners on succession and exit strategies for over 20 years.

Most business owners are busy—busy running the business, busy being busy, busy with the thousands of things owners need to do to keep the business running. For many, this is an endless loop of busy business, and it often prevents them from doing the things that require time, effort and attention and that should be the main focus.

We often hear people saying “work on the business, not in the business,” which is easy to say but not as easy to do. Many also talk about strategic planning, and one of the critical issues here is strategic succession and exit planning. What does your business look like in 10 years, 20 years and, ultimately, after you exit?

Steven Covey’s habit No. 2 is to “begin with the end in mind.” In other words, if you want a successful business, you need to determine what you want to accomplish. Succession and exit planning is a comprehensive process that focuses on the ultimate goal of a business. The importance of strategic succession and exit planning lies in having a detailed and documented plan that addresses every aspect of the business and keeps the business moving closer to the ultimate exit outcome.

How can you begin succession and exit planning successfully?

Most businesses I work with require a minimum of five years to maximize the value and prepare themselves to extract that value successfully. I have designed a comprehensive 21-step process for business succession and exit planning. It begins with seeing where your business stands today. Most business owners are unsure precisely what they have. Is it valuable? Would someone buy it? What makes it attractive (or not)?

The first step is to get clear on what you are trying to achieve. Beginning with the end in mind, what is your outcome? What does success look like? Sometimes, this aligns with why you started the business in the first place, but often, it (and you) have changed. I encourage people to be really focused here. “Selling to retire” is not a clear goal. But “sell my business to the leading competitor in my town for $5 million in 2029 so I can buy a condo in Florida and spend my days with my partner playing golf” is much more likely to succeed.

To achieve that goal, you must know where you are today. What is the business currently worth? If it is not worth $5 million, what needs to be done to improve so it is worth $5 million by 2029?

The second step is to undertake what’s called a “business insights report.” This is a detailed review covering the structure and ownership of the business and related assets; financials, including an analysis of cash flow, breakeven, sustainable growth rates, benchmarking and profit gap; all of the operational aspects; growth opportunities and risks; and, of course, a valuation of what your business is worth and its value potential. What should it or could it be worth, and how do you make that happen? By undertaking the report and going through the detailed analysis, you can determine what exists in the business today and where some opportunities and challenges might affect the ultimate exit strategy.

It’s also important to steer clear of a few common missteps during the process. My team and I see three main areas where owners make mistakes:

1. Starting too late: Often, owners hold on too long or wait “for the right moment,” which, of course, never comes. This means they rush to get a result. A good strategy (in any area) takes time and should not be rushed. No one has ever regretted starting too early.

2. Unrealistic view of the business: Sometimes, owners overestimate their business’s value and underestimate the issues, risks and barriers to a buyer. To some, the business is their baby, built over many years, and no one likes to think they have built an ugly baby. A realistic starting point is essential to get the implementation right.

3. Micro-managing every aspect of the process: This slows everything down and frustrates others involved. Owner dependence is a critical risk for SMEs, and continuing this reduces value and “spooks” the buyer.

Of course, none of this can occur if you don’t understand the value of the process and focus sufficient time, effort and energy into beginning with the end in mind and building a business succession and exit plan. In doing so, you can maximize the value of your business and achieve a successful exit.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?

Read the full article here

News September 26, 2023 September 26, 2023
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