I was in a yoga class the other day, and as we were all struggling to twist our bodies into the correct shapes, the teacher, sensing our anguish, recommended that we: “focus on the process, not the end goal.” We all relaxed a little bit. Her comment shifted my thinking and altered the way that I was approaching each posture. Instead of straining and struggling to get into the shape as fast as I could (the outcome), I tried to focus on incremental movements (the process) and figure out how I could best achieve the pose for myself.
This experience, of course, immediately got me thinking about how it relates to exit planning (it’s a habit I have!) and how applicable this advice is for business owners who are beginning the exit planning process.
We've often said that planning for a business transition is a process, not a one-time event. Without going through the exit planning process, owners have no tangible way of:
- Defining their goals for the business and their personal future.
- Calculating how much money they need to net in order to comfortably retire.
- Determining what their business is really worth.
- Knowing what their exit options are and how much they could net from each option.
Figuring all of these things out takes significant time and expertise – if you want to do it right. Our 6-step exit planning process is a specific methodology designed to help you achieve your ultimate goal – the successful sale or transfer of your business.
The process requires that you focus on the specific actions you should take to develop your playbook or roadmap for achieving the best possible outcome. Without the process, the outcome is left up to chance or luck or any number of other factors.
The act of planning helps you to visualize what you want, understand where you are and want to go, and think through all of the potential unforeseen events that could come into play. It’s an eye-opening experience for owners.
It’s All About the Planning, Not the Plans
As we discuss in Live Your Ideal Life After Selling Your Business, Dwight D. Eisenhower's famous maxim “Plans are worthless, but planning is everything” succinctly illustrates the importance of the planning process. While the details of a plan will change and evolve over time, it’s the planning process which results in the thorough exploration of all potential options and contingences.
And the knowledge you gain through this process is crucial to making decisions in the future even if circumstances change. You will understand the boundaries within which you have to operate and be ready to face any challenges that arise.
Not Planning Can Cost You (Literally)
We’ve frequently spoken to owners who believe that when they’re ready, they’ll simply find an outside buyer who will pay a premium for their business and they will sail off into their next phase of life.
This isn’t even close to what usually happens during the attempted sale of most businesses. The IBBA and M&A Source Q1 2019 Market Pulse Survey reveals that:
- Business brokers and advisors decline about 70% of the business opportunities that come their way because the businesses are not marketable.
- When advisors accept a business engagement, nearly 50% of those engagements will terminate before a successful closing.
The number one deal killer cited? Unrealistic owner expectations - sellers place too high a value on their businesses. Other factors they cite as negatively impacting owners’ ability to sell include declining sales trends, dated business practices, over-reliance on the owner, and significant customer concentration. The survey also suggests that most owners don’t clearly understand all of the exit options that are available to them.
These dismal stats aren’t surprising – only around 50% of owners of companies in the $1 million to $5 million revenue range have engaged in formal exit planning. And, the smaller the company, the worse it gets – with ~90% of owners in the $500,000 range having NO formal exit plans.
Your Exit Planning Process
The Market Pulse survey stresses that owners need to come to market “with well-organized records, realistic expectations, and a committed team who will keep the process moving forward. Anything less can lead to disappointment and ultimately hurt your ability to sell at all… Sellers should ensure the business is in the best shape possible to receive the highest market value.”
Step 3 of our 6-step process, shows you how businesses are valued and how to identify its weaknesses. It also teaches you how to address those weaknesses and present your business in the best possible light to brokers and potential acquirers.
Exiting your business truly is a process and not a discrete event, and it affects many aspects of your life – personal, financial, and business.
As you move through the process, you’ll likely realize that you have more options than you first imagined. And the outcome you initially sought may change entirely.
This planning will help you examine your financial and emotional readiness, understand the state of your business, and help you determine the best possible exit options for you and your business – all steps on the path to achieving your personal and financial goals.
To start your exit journey toward achieving your optimal outcome: