Every Entrepreneur Needs an Exit Plan: What is Yours?

The American Dream is to own a small business. The allure of making your own hours, being your own boss, and keeping all the money leads to 600,000 – 800,000 new businesses being launched on average each year. Yet, the reality is far from simple. About 20% of small businesses fail within the first year, and by year five, 50% have closed their doors.?

As a small business owner, you quickly realize that it takes a lot of hard work just to keep the lights on. Sure, you make your own hours—but those hours often stretch late into the evening, especially in the early years. And even when you aren’t physically working, your mind is still spinning, thinking about the next challenge, the next opportunity, or the next big decision.

I know this because I’ve been there. I’ve owned my own business for 20 years now. While it’s been fulfilling, it’s also been challenging. But fortunately, I love my work—even during my corporate years. As an entrepreneur, I didn’t just want to be my own boss, although past bosses would maybe argue. I wanted to find purpose in my business. I wanted a God calling.? To be honest, I am not sure if God plans for me to ever retire, but I do know I am called to leave my team and my clients in good shape for whatever His timing may be.

No matter how much you love what you do, there comes a time when every entrepreneur must ask: What’s the plan for the future?

Why Every Business Owner Needs an Exit Plan

Owning a business can be exhilarating, but it’s also demanding. I’ve spent years coaching other small business owners, many of whom are serial entrepreneurs. The truth is every new venture demands a significant investment of your time, money, and energy. You’re going to work a lot, worry a lot, and maybe even feel a little crazy sometimes—especially when you’re signing checks with ever-growing numbers.

But for those of us who are driven by the challenge, there’s something rewarding about it all. If you’re talented, dedicated, and yes—lucky—you’ll make it past the five-year mark. Then ten years will fly by, and before you know it, you’re staring down twenty. Eventually, you’ll wake up and realize that retirement isn’t so far off.

So, do you have an exit plan?

• Is there a family member or partner ready to take over?
• Is your business sellable?
• Does it generate enough profit or have enough assets to fund your retirement?
• Or will you simply close the doors one day, turn the key for the last time, and say goodbye to your business, your team, and your customers?

These are tough questions to face, but they’re necessary. Without a plan, you might be putting yourself and your business at risk when the time comes to step away.

When Is the Right Time to Exit?

Deciding when to exit your business isn’t easy—especially if you’re still having fun and turning a profit. But even if you’re still deeply involved, it’s worth considering a plan early. The right time to exit depends on a few factors:

• Your age: Are you approaching retirement age or just starting to think about it?
• Succession planning: Do you have someone in place to take over when the time comes?? And are they ready even if you are not?
• Business performance: Is your business still profitable, and what’s its outlook for the future?
• Personal goals: Are you still passionate about what you’re doing, or are you ready for a new chapter in your life?

These are just a few things to weigh when thinking about your exit. And remember—planning doesn’t mean you’re ready to leave right now, but it does ensure that you’ll be prepared when the time is right.

What Are Your Exit Options?

Now that we’ve covered why it’s important to plan, let’s look at your options. There’s no one-size-fits-all solution, so it’s important to consider what’s best for your business and personal situation.

1. Sell Your Business to an Outside Buyer

One of the most common options is selling your business to an outside buyer. However, it’s not always as easy as it sounds. Here are a few factors to consider:

• Timing: If you’re younger, you’ll likely need a larger payout to fund your next venture or support your family. If you’re closer to retirement, you might have different financial needs. Either way, the timing of your sale can significantly affect its value.

• Profitability and Valuation: A key factor in determining the value of your business is EBITDA—Earnings Before Interest, Taxes, Depreciation, and Amortization. Essentially, EBITDA gives potential buyers a clearer picture of your company’s profitability. Many small businesses are valued at 3-5 times their EBITDA. But ask yourself: will the after-tax proceeds from a sale be enough to replace your current income and cover your retirement?? Outside equity firms will call and get our clients excited about a potential exit.? That is until they hear how much they will actually pay them for the business they gave up kids’ ball games and dance recitals for.

• Finding a Buyer: Selling a small business often involves a local market, so finding the right buyer can be a challenge. If your company can run without you and has a track record of steady growth, it’ll be much more attractive to potential buyers.? Even if it is a family member.? I have seen many first-generation owners hold on to their companies for income rather than just have the next generation buy them out.? They think they are being a benefactor by giving the company to them.? But most kids don’t want the business when they (the kids) are ready to retire.

2. Sell to Someone Within Your Company

Another option is selling to someone inside your company, such as a partner, key employee, or family member. This approach requires careful planning but can offer several benefits:

• Owner Financing: In this arrangement, you finance the sale, allowing the buyer to pay you over time. This can make the sale more feasible if the buyer can’t secure outside financing.

• Selling Outright and Staying on as a Consultant: Many business owners choose to stay in a consulting role for a year or two to ensure a smooth transition. This can provide stability for both the buyer and the business.? You may be wise to do this even if the owner financed it to ensure the future viability of the business.

• Employee Stock Ownership Plan (ESOP): An ESOP is a retirement plan that allows employees to acquire ownership in the company. It’s a way to align your team’s interests with the success of the business while gradually stepping away. ESOPs are complex, though, and require careful structuring.

3. Hand the Business Down to Family

If you’re hoping to keep the business in the family, it’s crucial to identify the next generation of leaders early on. They’ll need time to learn the ropes and gain experience. You’ll also need a detailed succession plan to ensure they can successfully run the company when you step away.

4. Close the Business

Sometimes, closing the doors is the most realistic option—especially in fields like private practice (e.g., law, counseling, or real estate), where the business relies heavily on personal relationships. In these cases, you’ll need to notify clients, wrap up contracts, and inform employees well in advance. While it’s not an ideal scenario for everyone, it still requires thoughtful planning to exit gracefully.

A Checklist for Planning Your Exit

As you begin thinking about your exit plan, here’s a checklist of key steps to guide you through the process:

1. Assess your financial goals: How much money do you need to retire? Are you on track to reach that target?
2. Evaluate the business’s independence: Can your company run without you, or is it too reliant on your presence?
3. Identify potential successors: Is there someone within the company or your family who can take over? If not, do you need to groom someone for the role?
4. Review your company’s financial health: Is your business in good shape to sell or hand over? Have you assessed key metrics like EBITDA?
5. Get a professional valuation: Hire an outside expert to value your business objectively. This will give you a clear idea of what your company is worth.
6. Determine your ideal timeline: How long do you plan to stay involved in the business? Are there any personal or market factors influencing your exit?
7. Prepare your team: Whether selling, handing down, or closing, make sure your employees are ready for the transition.

Planning Early Leads to a Better Outcome

Planning your exit might not be at the top of your mind right now, especially if you’re still deep in the grind of growing your business. But without a plan, you risk encountering serious financial and operational challenges down the road. Without proper preparation, you could end up with:

• Insufficient savings for retirement
• No succession plan in place
• A business that isn’t worth what you hoped
• Employees left uncertain about their future
• Customers left without continuity of service

Ready to Get Started? Let’s Talk

So, where do you start? Knowing when to leave your business and planning an exit strategy isn’t something you have to figure out on your own. Whether you’re looking to sell, pass the business down, or close the doors, creating a well-thought-out plan will ensure a smoother transition and maximize your financial future.

We’ve helped many small business owners successfully navigate this process—structuring deals, creating succession plans, and determining how to make the highest value exit possible. If you’re ready to start planning, we’re here to help. Contact us today, and let’s discuss how to make your exit a successful one.