Begin With The End In Mind: Growing Into Your Exit

It has been said that ‘timing is everything’. Well as far as business growth and exit planning goes, ‘timing’ may end up being one of the most important elements of your overall plan.  

This article is intended to provide you with some guidance as to how you can begin to design a successful growth and exit plan no matter if your exit is near or many years into the future. And more importantly, how you can prepare yourself and your business for the success you desire.

Gaining an Exit Perspective

Setting a plan for an exit requires a perspective on what you want and when it is possible to realize your goals. An important consideration for every business owner is that of ‘exit windows’, or, how to time your exit to meet your business and personal goals.  

In fact there are three (3) components of ‘readiness’ to a well developed growth and exit plan:

1.   Personal Readiness

2.   Company Readiness

3.   Market Readiness

This article focuses on market readiness, with heavy consideration given to company and personal readiness to help you gain an overall ‘exit perspective’.

Once you understand the likely timing of your exit, there is an opportunity for you to begin planning and making decisions today that increase the likelihood of actually realizing your goals with a future exit.  

It starts with understanding a simple framework introduced in 2004 by Robert Slee in his seminal work, Private Capital Markets and illustrated above called The US Ten Year Transfer Cycle.

Without this type of framework and planning, you are likely to be without direction for your exit, and possibly missing the next exit window.

Exit Windows – Market Readiness - Hindsight is 20/20

First published in 2004, the chart above illustrates the cycle of business exits and shows what we all now know to be true in 2020 - for many owners, an exit window slammed shut abruptly due in large part to the impact of Covid-19 on the economy.

Is Robert Slee a modern day Nostradamus, predicting a global pandemic that would shut down the world economy, freeze the capital markets, and leave many business owners stranded at the closing table scrambling to put their deals back together?  

The short answer is no, but we all think things like this will never happen to us...until they do.

One of my clients actually experienced getting “left at the altar” when Covid-19 froze her transaction at the finish line. Now we’re waiting for the financing to come back together so our team can help her finish what we started.

Could anyone have predicted a global pandemic? No. But if you simply look at our economic history, is it any surprise that we were due for some sort of correction?  

Depending on how long you’ve owned your business you probably remember:

• 1987 - Black Monday and the economic downturn that lasted into the early 1990’s
• The Roaring 90’s - Economy’s meteoric rise fueled by the tech boom
• 2000 to 2001 - The Tech Bubble burst and 9/11 (who could’ve predicted that?)
• 2007 to 2009 - The Great Recession - housing and stock markets crash
• 2010 to 2019 - Booming Recovery
• 2020 to ??? - Global Pandemic and economic downturn

Now, past performance of markets is not necessarily a perfect predictor of the future. However, as the chart indicates, the last four (4) decades have followed a similar pattern of economic growth / expansion and then retraction / recession.

Setting a proper growth and exit plan begins with the end in mind. And, if time permits, you can think about growing into your future exit. It helps to understand when you would like to exit and then build the business growth and exit plan around that timing.

Three (3) Concepts Relating to Timing of Growth and Exit Planning

In order to manage anything in life and in business, you need to be able to measure it.

Measuring your personal, company and market readiness can set a solid foundation for your growth and exit plans and be a large determinant as to whether you need to grow into your eventual exit over time or if you should consider an exit earlier than perhaps originally planned.  

The cost of not planning could be literally millions of dollars and years of time you don’t want to lose.

1. Personal Readiness (Financial & Mental)

Growth and exit planning for private businesses largely revolves around what an owner wants to personally accomplish. Some owners want to be worth $10 million (or $100 million). Other owners want to have personal freedoms to achieve balance in their lives – that is their priority. Others still, just live to perfect their craft and design income and businesses around that passion. 

No matter what your personal goals are, you are well served understanding what stage you are at in terms of personal readiness for an exit - both financially and mentally. That will be the largest determinant of whether you want to undertake the next level of growth in your business.

2. Company Readiness

Is your business set up today to be run by someone else? This is one measurement of company readiness. Many privately held business owners are personally involved in many, many aspects of their businesses. These companies are likely not ready for a transition because they cannot function without the owner. Other areas of company readiness include financials, systems, management, operations, and many other ‘value drivers’ that determine a businesses’ readiness for a transition. Growing into your eventual exit may include increasing your company readiness to prepare your business for another owner.

3.Market Readiness

Market readiness was discussed above and today’s market is currently tough for transactions and exits. How many owners now wish they were prepared better for their exit?  

The current economy is uncertain, business cash flows are all over the map, financing for transactions is sitting on the sidelines while investors wait to see what the future holds. Market readiness is a large factor in ‘growing into your exit’ because you may determine that now is not the time to exit if you are willing to create a plan to strengthen / capture value while you wait for the next market window to open.  

Real World Example of Timing

Personal Readiness - Mental

I have 2 clients (partners in a firm) who recently came to me with a high mental readiness to sell their company. Like many owners who have been at this for close to 3 decades, they were feeling burned out and questioned if they have the energy or the passion to keep building their business. In short, they were ready to be done.

Personal Readiness - Financial

Like many business owners, the majority of their wealth is tied up inside of their business, so they NEED to sell in order to fund what’s next for each of them. So their financial readiness is very low for an exit. In other words, they are at the mercy of what an investor/buyer might offer and have little to no leverage or options to accept deal structures that don’t pay all cash at closing.

Company Readiness

They received an offer 2 years ago that they passed on, but now wish they had accepted...again, timing is everything. The good news is the business is still sound and worthy of investment. The question is whether the market is ready.

Market Readiness

Given the market issues we discussed earlier in this article, we are concerned that the timing may not be right to sell for the amount they need. Specifically, we are worried that we may only receive low-ball, opportunistic offers.

Our solution? We’re going to test the market with a couple of investors we already know. If they get their number, problem solved. If not, we have already determined that we will do a 12 month value acceleration engagement to make sure they can maximize their sales price and transition smoothly once things open up.

This was a complete 180 from where they started with me. Had we not gone through the planning process to map out what they each want and the likelihood of getting that by measuring their Personal, Company & Market Readiness, they never would have been able to create a path forward that works for them both.

Of course, in hindsight they wish we had started this process 2 years ago.

Concluding Thoughts

If you know that your exit window can extend beyond the current recession, then holding onto your business and growing into a future exit may make a lot of sense. However, if you don’t want to hold onto your business through the current downturn, then thinking about an exit plan (that includes an accelerated growth and savings plan) can make sense today. 

You want to run your business with your exit in mind, focusing on company and personal readiness as well. In this way, you can increase the likelihood of meeting your exit goals, which have been measured as a part of your total exit and business transition planning.

Call or email me to discuss what growing into an exit can look like for you.

312-612-9330 or [email protected]