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Don't Let Disaster Drive Your Exit



Last week we started a mini-series on why every business owner should make exit planning a priority, and why you should start working on it today.


Investor and entrepreneurial icon, Carl Allen once said - “The only reason to have a business is to sell it and get paid for it,” a statement which I wholeheartedly agree with.

As a business owner, you should always be thinking about your next move, and a solid plan to exit is at some point going to be that move.


Having a predetermined exit plan gives you some control over your small business's future. Think about it. A solid exit strategy prevents most failed attempts to exit, but more than that, a well-designed exit strategy is just good business strategy. It’s a guidepost for effective decision-making in your business.


Most business owners know that, when facing a strategic decision, if it does not increase the value of your business, you shouldn’t do it. However, value does not always happen immediately. Some strategies can take a long time to produce value. The hard and fast rule is: if you can’t articulate the value that will be added to your business, don’t do it.


According to The State of Owner Readiness™ survey, published by the Exit Planning Institute, 74 percent of business owners have no exit plan. If you are among that 74 percent, a default strategy quickly becomes evident - and not in a positive way. In fact, according to the EPI study, a full 50 percent of business transitions are involuntary.


One of my mentors used to say, “If you don’t have an exit strategy, by default your strategy is to die behind your desk and leave the problem for your family and employees to deal with.”

As harsh as this sounds, it's a reality for many businesses without solid strategy. We all hear tragic stories of businesses forced to liquidate, hold a fire sale, or close their doors because of some disaster - oftentimes one of the 5 D’s (death, disability, divorce, distress, or disagreement), but there are countless other risks that business owners don’t like to think or talk about.




Here are a couple of scenarios I have witnessed firsthand:

  • The owner suddenly dies and leaves the business to his spouse or children, who have never worked in the business but are reliant on the income it produces.

  • The business’s largest customer, accounting for 50 percent of their revenue, suddenly gives notice and leaves for a competitor.

  • The market suddenly changes and the company fails to adapt, causing a steep decline in sales. The owner realizes their only option is to sell before it’s too late, however, it already is.


These nasty scenarios happen far too often, and I’m sure you could even add some stories of your own to this list.


So, knowing that we’ve all heard at least one story like this and that the most common denominator for those few companies that actually exit successfully is having a solid plan, why is it that 74 percent of business owners still have no exit strategy at all?



Well, in talking with thousands of business owners I have found 3 predominant reasons.


First, an exit is a once-in-a-lifetime event. When it’s time to exit, most business owners have never been through it before. It becomes a classic “don’t know what you don’t know” scenario. Although they might occasionally dream about some future exit, they just don’t know where to start and therefore fail to actually do so.


Second, their personal life is totally intertwined with the business. They can’t even fathom what they’ll do when they are no longer working in the business. These owners haven’t dedicated time to thinking about what they’ll do in the “third act” of their lives, so they just delay the inevitable. They think to themselves, “What the hell am I going to do after I sell this? Golf every day? I don’t think so!”


Third, most business owners are afraid of the word EXIT! Why is it that business owners think that the word EXIT is such a nasty little four-letter word? Let’s explore a few possible reasons I’ve heard through the years (and might be rolling around in your head, too).


For most business owners, the word “exit” tends to conjure negative thoughts. It brings about images of abandoning the business they’ve worked the better part of their lives building, and the people they’ve spent years growing to know professionally and personally. They think about some uncaring, massive corporate entity taking over and destroying what they’ve meticulously built over many years.


Business owners think of losing the culture and the friendships. They think of losing a sense of purpose and reason to get up in the morning. They think of the customers and employees who might get angry because they were sold out. They have heard horror stories of former business owners who regret selling their businesses. What they don’t know is that a properly executed exit strategy actually helps prevent these catastrophes, not cause them.


The term “exit” should be taken as action neutral. If it makes you feel better about the process, call it something else - like transition, transaction, or succession.


The simple fact of the matter is that exit strategy is good business strategy. No, it’s not always easy. Few really good things are. But, the long-term benefits make it undoubtedly worthwhile.


Check back next week for my closing arguments as we go to Exit Strategy Court and I present the case for Exit Planning Now!



Be sure to check out our podcast for more tips on maximizing your business now!


 

Tom Bronson is the founder and President of Mastery Partners, a company that helps business owners maximize business value, design exit strategy, and transition their business on their terms. Mastery utilizes proven techniques and strategies that dramatically improve business value that was developed during Tom’s career 100 business transactions as either a business buyer or seller. As a business owner himself, he has been in your situation a hundred times, and he knows what it takes to craft the right strategy. Bronson is passionate about helping business owners and has the experience to do it. Want to chat more or think Tom can help you? Reach out at tom@masterypartners.com or check out his book, Maximize Business Value, Begin with The Exit in Mind (2020).


Mastery Partners, where our mission is to equip business owners to Maximize Business Value so they can transition their business on their terms. Our mission was born from the lessons we’ve learned from over 100 business transactions, which fuels our desire to share our experiences and wisdom so you can succeed.




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