What are the common pitfalls and challenges of exit planning and how to avoid them?

Start by asking yourself one simple question; what do I want from my exit? A few rules: - No numbers, $5,000,000 isn't a goal, it's what you can do with the $5,000,000, focus on that. - No dates, calendar based decisions are meant for people that have jobs, not businesses. Think of events or milestones instead. - Dont just say "retirement", it's what your doing in retirement that matters. Read "Finish Big" if you don't believe me. That will give you good start to making sure your goals are clear and your team can all pull in the direction that you want, not just what they're trained to recommend.

Exit planning is something that some small business owners are not comfortable discussing because it often involves a conversation about some unfavorable scenarios like termination of business as going concern. After all people usually open up a business to be financially independent and successful among other things. I found it helpful starting such conversations by asking a fairly simple question: Do you see yourself making a living by running that business for at least some time or do you want to build up your company/brand value as soon as possible just to sell/cash out and start something else? i.e. being a ‘serial entrepreneur’ because the answer will impact the overall enterprise development strategy.

One of the primary challenges in exit planning is the failure to start early. Ideally, you want to start the plan at least five years before the intended exit. This early start is crucial for maximizing business value by ensuring that all aspects of the operation are optimized. Key areas to focus on include personnel management, market positioning, financial performance, and customer satisfaction. By addressing these components well in advance, business owners can significantly enhance their company's appeal to potential buyers or successors. Additionally, clearly defining your goals for the exit process is essential as it prepares the business for a smooth transition.

Exit planning is about focusing your business strategy to make your business as valuable as possible so you have many options when you want to exit. Think of it as making minor improvements to your home over time to build equity and develop relationships with potential buyers years in advance. You invite prospective buyers over every few years to look at the improvement you've made, and this keeps you top of mind and allows them to view you as someone serious about building value.

Most owners are disappointed to find out how much more THEY value their business than BUYERS. Your exit goals or needs won't matter to a buyer, neither will a formal valuation. They will value your business on its transferable value, not your sales expectations And price is irrelevant without considering deal terms. Sellers obsess over price, buyers obsess over terms. If you sign an agreement to "sell" your business for twice what you expected but only receive a quarter of it, did the price really matter?

Assessing the value of the business means hiring someone qualified to examine your business thoroughly. This should be a CPA firm with deep expertise in business valuations in your industry. DO NOT use a business broker or a business coach "certified" in exit planning. Use a serious accountant with experience.

There are numerous ways to exit your business but your goals should inform your options, not the other way around. No matter what you want from your exit, you can probably transform your business to accommodate it. As long as you can be patient, you don't have to settle for what your options are today.

When choosing your exit strategy, you don't select just one. If you've planned correctly, you'll have multiple options. These include a management buyout, a sale to a competitor, a private equity firm, and a potential sale to your employees while bringing in an outside CEO. Options increase your potential for a great deal.

All of the whats of the technical aspects of your strategy have to be squarely pointed at your why, or else you'll regret your exit just as much as most owners do.