Dear Business Owner,

You might not like this letter. Reading it could help make you a large amount of money, save irreplaceable time, and avoid an inestimable amount of stress. But you still might not enjoy reading this because it contains some facts you may find hard to hear.

Our company does exit planning – we help business owners define their exit goals and then design and implement plans that achieve those goals. In our work, it’s common that one of the major obstacles to the owner achieving exit success is the owner him- or herself. Yes, often you comprise a large part of the problem. We usually don’t say this so bluntly because getting fired for tactless speech helps neither the client nor us. But the common reality is you – or more specifically, your habits and misconceptions – are a significant barrier to exit happiness.

Before explaining how and why you may be making your own exit harder, please know that by pointing out these issues, we are not criticizing your effectiveness as a leader nor overlooking your company’s accomplishments. You’ve built a fine company, otherwise you would not be reading this. However, building a business is a different process than exiting from a business. And just because you have built a strong company does not mean you will have a happy exit. If the reverse were true, every successful owner would have a successful exit; clearly, this is not the case. The root issue is that many owners unknowingly do certain things (or don’t do certain things) that undermine or even block their own exit success.

So what habits and misconceptions commonly hinder owners from achieving successful exits? Review the list below to spot the ways you may be hindering your own exit.

1) Remaining involved in day-to-day operations – If your company depends on your skills, knowledge, and/or experience to get the daily job done, that dependence will become a serious problem when you try to exit. Your company must be able to run smoothly without you most of the time, otherwise it will likely be worth less to a buyer and/or may not survive your exit. Undoubtedly you are good at what you do, and perhaps in the past you had to be inextricably involved in daily operations to ensure the company’s survival. But that’s in the past. To exit successfully, you must create and lead a team that can handle most operational issues without your supervision.

2) Remaining involved in business development – If your company cannot find and acquire new customers without your help, that, too, will present a problem when you attempt to exit. Your company’s sales power cannot walk out the door when you do, otherwise the company’s value to a buyer decreases and/or the company might not survive past your exit. Just like with operations, if you are currently involved in sales, it’s probably because you are good at it and perhaps even like it. But prospects and customers must have a whole team with whom they can do business, not just you. Extracting yourself from business development, all the way from lead generation to closing the sale, is imperative to exit success.

3) Not talking about your future exit with your top employees – Many owners treat their future exit like a “dirty little secret” (as a client once called it) and feel pressured to hide it from their top employees. That’s understandable because your exit has the potential to be a “I-win-you-lose” situation – you exit happily while they struggle with career uncertainty. The conventional wisdom, therefore, is to withhold your exit from your team until the last possible moment. That approach limits honesty, feeds paranoia, and hinders building company value. The better method is to identify your trusted co-leaders, find the win-win, and engage them in the process. This restores honesty, builds trust within your team, and creates alignment with everybody working to achieve a successful exit.

4) Not tracking performance against financial and operational metrics – When you go to exit, your future buyer or successor will want to see that the company has performed well over time and can be expected to continue doing so. Perhaps the best way to create confidence for buyers or successors is to show positive results in writing against key leading metrics and compelling goals. Examples of ways to define and track key results include:

  • Creating annual budgets and measuring performance periodically throughout the year
  • Building operational or sales dashboards and keeping score every week or month
  • Publishing long-term strategic growth plans and tracking performance against the strategic objectives each quarter or year

Many companies do not do this work, in part because it takes commitment and resources. Another reason some companies skip these steps is because their owners feel these efforts are unnecessary. Many owners are entrepreneurial at heart, and while they enjoy the creative challenges of leading a company, they do not enjoy the regular responsibilities that come with managing a company. Examples of tasks more managerial in nature include defining company goals, identifying leading indicators, diligently tracking results, and holding individuals and teams accountable. Consequently, if the owner(s) do not focus on this work, often the rest of the organization overlooks it as well. Carry this oversight to your exit, and you may find it hard to get maximum value and achieve a stable exit if the company’s ability to perform well is unproven or unclear.

5) Waiting too late to start your exit planning – Too many owners put off preparing for exit, often waiting until perhaps a year or two prior to when you would like to exit. That’s too late. Many of the accounting, tax, legal, and business exit tactics that can enhance success take years to implement and reach their full effectiveness. Plus, preparing for exit takes a considerable amount of time. If you cram all of the required work into the final 12 to 24 months prior to exit, you risk taking your eye off the company’s performance exactly when you can least afford it.

It’s common sense that the less time you have to prepare for exit, the lesser your results may be. Once you reach the point where you intend to exit in the next five years, serious exit planning and preparations must commence as soon as possible. To better understand the time and effort typically required to prepare for exit, download our free ebook, “Your Last Five Years: How the Final 60 Months will Make or Break Your Exit Success.

Congratulations on completing this open letter with an open mind. We wrote it out of a genuine desire to help you achieve a successful exit. Realizing you may be part of the problem clears the way to implementing a winning exit plan.

Sincerely,

Your Exit Planning Team at NAVIX

 

 

 

This information was published originally by NAVIX Consultants and is for educational purposes only. Please consult your tax, legal, and other advisors to evaluate how this material may apply to you and your businesses. NAVIX does not provide tax or legal advice nor services.

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