The power of a strategic exit plan

Jayne McQuillan

Guest Columnist

June 17, 2024

Statistics show 39% of adults started saving for retirement in their 20s, 25% in their 30s, 15% in their 40s and 6% in their 50s.

Plus, 50% of adults between 18 and 34 are not saving for retirement at all.

I frequently get asked, “when should I start planning for my transition and exit from my business?”

One, two, five, 10 or more years?

Like employees who prepare for their retirement, business owners often need more time to plan for their exit.

The answer to “when” is – the day you start your business.

According to the Exit Planning Institute, nearly 50% of all business exits are involuntary and forced by the five Ds: Death, disability, divorce, disagreement and distress.

And only two out of 10 businesses that go to market, sell.

The lack of preparation could devastate your family, employees, customers, vendors and the community in which you operate.

Why start planning your business exit strategy now?

• You want to improve your business
• You’re exhausted from sleepless nights worrying about the challenges in your business
• You want to exit your business successfully (when you’re ready), but you don’t know what steps to take to make that happen
• It takes time to plan, prepare and exit, typically three or more years

Failure to plan can be costly

Several years back, I met with an owner of a third-generation family business that was generating $20 million in sales/revenue – however, the valuation (value) of the business was approximately $2 million.

The owner wanted to exit in the next one to two years, but he was not prepared.

The business depended on him for sales and much of the day-to-day decision-making.

In addition, there were no documented systems and processes in place to easily transition the “how” of what they do to a potential buyer. 

After several meetings and discussions about what needed to be done to position the business for a sale/exit and improve business value, the owner, who was in his early 60s, decided he didn’t want to put in the effort to monetize his exit.

Instead, he decided to dissolve the business in the next year.

The business owner’s lack of planning significantly affected him and those around him. 

He and his family, after three generations, could not monetize the true value of the business due to a lack of planning and preparation.

His employees were going to be without jobs and his customers and vendors would be losing a supplier/customer.

In addition, the community, to which they provided charitable support, was going to lose out.

Focus on building value

In contrast, I am currently working with a business owner who has a three- to five-year timeline to exit and is focused on building value.

To drive value in his manufacturing and distribution business, the business owner has:

• Developed documented processes and systems and training staff in the consistent delivery of their work
• Brought in-house two outsourced processes to drive value-add production and shifted an increased percentage of their revenue to value-add manufacturing as opposed to pure distribution
• Reduced inventory to drive improved working capital

The results speak for themselves.

In eight months, the owner has increased business value 1.6 times by focusing on value creation in everyday business operations… and he is not done.

A process, not an event.

Focusing on building value daily is a good business strategy.

When you incorporate exit planning into your business, it:

• Focuses on creating transferable business value today that makes exit timing irrelevant
• Prepares the owner personally and financially for their next chapter
• Creates a roadmap for growth
• Creates options for exit
• Allows the owner to enjoy the business while they’re in it, not just when they exit

You don’t build a successful exit by focusing on it somewhere down the road.

Like your employees need to focus on their retirement planning as soon as possible, you, as a business owner, need to focus on your exit strategy now.

Every day, make decisions – big or small – that will lead you toward a successful exit.

As stated by Hilton Barbour, a marketing and communications strategist, “there is no denying that, as markets become more complex, and we face a veritable tsunami of information, successfully steering companies forward takes courage and conviction and, yes, maybe even a dollop of hope.”

When it comes to exit and transition planning, that hope is dwarfed by the courage to do the hard work required.