Creating an End Game for a Business Owner

There are many ways in which an exit planning project can get off track and not deliver the desired results. The following are seven of the top mistakes that business owner make in exit planning:

1. Not Allowing Enough Time for Exit Planning
   Time is everything to a small business owner. There is never enough time to do all the important things that need to get done. So adding the burden of exit planning and execution to this load can be overwhelming for the business owner. Exit planning is one of those Important, But Not Urgent matters, so dealing with it can be postponed indefinitely.
   
   But in the order of importance to a business owner developing and executing an exit strategy can easily be ranked in the top 5 items critical to a business. Exit planning becomes even more critical as one approaches one’s planned exit date. The choice is simple, start exit planning at the right time or delay dealing with exit planning until it is too late to impact any of the conditions that impact whether or not a business can be sold and for what price.
   
   The Return on Investment for an Exit Planning Project can be ten-fold or higher than the amount spent.
   
2. Trying to Determine the Best Exit Strategy, Developing an Exit Plan and Executing a Plan without Outside Advisors
   The exit planning process is lengthy and complex, involving strategic exit planning, financial planning, wealth management, value enhancement, and either selling the business or transitioning the business to new internal or family owners. It is rare that a given business owner has all the knowledge that is needed to create and execute the proper exit plan. Also, time is a factor. The many tasks that need to be accomplished can take hundreds of hours. Time that the business owner typically does not have.
   
   Getting advice from outside advisors may cost little, particularly if you already have a relationship with some of these advisors. But it is important in the exit planning process to seek help from accounting firms, business law firms, insurance brokers, exit planners, estate planners, wealth managers and M&A advisors, to name just a few. The need for outside advisors is particularly appropriate to create exit related legal and estate planning documents.
   
3. Not Dedicating Enough Business Owner Time to the Exit Planning Process
   This may be one of the hardest. Exit planning can easily require an average of 1 day per week for extended periods of time. That means that time management becomes a critical aspect of exit planning. This means delegating tasks, training staff, and perhaps hiring personnel to offload part of the current tasks performed by the business owner. Time trade-offs have to be managed. Weekly decisions must be made so that exit planning tasks are executed in a timely fashion.
   
4. Not Determining What Their Company is Really Worth in the Market
   Determining what a company will actually sell for at any given point of time is educated guesswork at best. There are a variety of approaches and different types of advisors that can help you estimate what your business would likely sell for. Often the first time that an owner even thinks about their business valuation is if someone from the outside comes in and wants to make an offer to purchase the company. The best way to determine business value is to create an auction-type process where multiple prospective buyers are all engaged at the same time and provide multiple points of reference as to business value.
   
   The mistakes in this area are easy to define:
   — Accept a price that is too low. This can happen because the business has not been properly prepared for the sale process, or from an owner too anxious to sell and exit the company.
   — Refuse a price that is perceived to be too low, but it the near to the market price. With small businesses, there may be a limited number of prospective buyers, so care needs to be taken with any reasonable offer.
   
5. Working with the Wrong M&A Advisor
   There are primarily 3 types of M&A Advisors (1) Business Brokers (2) M&A Intermediaries (3) Investment Bankers. The right choice in the type of an M&A advisor is typically driven by the size of the company, but these types often overlap, so the choice of advisor type may not be obvious. Also don’t just start working with the first M&A Advisors who approaches you. The choice of the right M&A Advisor is critical to your success and will determine how much in fees you will pay for their help. Determine first which advisor type is right for your business and then interview multiple advisors in that category. Almost all M&A Advisors will require exclusivity when it comes to listing your company for sale, so make this decision carefully.
   
6. Not Developing a “Life After Exit” Plan
   The problem that sometimes occurs is a business owner who is considering exiting their business has the strong link between the owner and his business. The challenge is that the owner has difficulty viewing their life after they exit the business and separately from the business. Unless a real “life after exit” plan is developed, the owner may not choose to sell, even if offered a reasonable price for the business.
   
7. Not Understanding the Selling Process or the Business Transition Process
   The process for selling a business is quite different from transferring ownership and management to current employees or another family member. Each of the processes can be quite complex, depending on circumstances, and careful planning needs to be done to assure that the end objective is achieved on a timely manner. This takes education, planning and proper execution.