Take the first step to a successful exit

Shockingly, nearly 80% of small business owners do not have a plan for exiting their business, and 50% of them have not even thought about what they will do when they no longer want (or are able) to carry on in their leadership role.

That’s quite a scary thing because – like it or not – we will all have to exit our business at some point in time.?And for our family and employees’ sakes, it’s far better to have a plan than to die in harness…

However, because the very thought of bringing your involvement in your business to an end seems so final and so complex, it is tempting to do a Scarlett O’Hara and “think about it tomorrow”.?

This is often compounded because the task seems so vast that you don’t know how or where to start, and you can’t see how to break it down into manageable, bite-sized chunks.?So, you put it into the “too difficult” box – and then a year goes past, and another, and another…?and all of a sudden, either your circumstances change, or you just get tired of the leadership hamster wheel and want to get off.

But, trust me, it is extremely hard to exit a business at short notice, and your lack of preparation and planning means that when you put it on the market with a short completion date, the sharks are already beginning to circle.?In effect, selling or exiting without a plan is announcing a fire sale.

Exit Planning IS Business Planning

Just with a different end state in mind – the next stage of your and your family’s life journey.?

However, I know that for many of my clients, it helps to think of writing an exit plan as being the equivalent of crafting a Power of Attorney for their businesses, then combining this with an action plan to deliver what they’ve determined they and the business will need.

And like all such policies, it’s much better to have something written down (and regularly reviewed), that can easily be activated when you need it, rather than the alternative…

Over the years, I have found that business owners and CEOs who have achieved successful exits had followed similar paths.?That there were 7 distinct elements that each of them nailed, that allowed them to maximise the value of their business, then leave it gracefully – with no regrets, no bridges burned, and on a timeframe of their choice.

This newsletter – and the next 6 following this – will look at each of these seven elements in turn, and I’ll share with you the insights that I’ve gathered over the last 30 years that will help you take exit planning back out of that “too difficult” box.

Begin with the End in Mind

In my work with CEOs and Founders over the years, I’ve found that the easiest, smallest possible, step to start the process is to think about the end you have in mind.?Sounds counter-intuitive???Actually, once you have envisioned the end point, it’s much easier to work backwards in terms of planning your route.

So, let’s help you get off to the right start by thinking about the four different end-points you could have.?I call these the first four steps, even though one of them will be your preferred and planned outcome, because making this initial decision will determine your entire future strategy and action plan.

These Four Steps are:

1. Stepping Up
2. Stepping Aside
3. Stepping Away
4. Stepping Out

1. Stepping Up

This is the most appropriate step for you if you’ve come to the conclusion that you don’t want to completely say goodbye to the business that you’ve built up over the years, but you are also getting a wee bit sick of being constantly caught up in the whirlwind of day-to-day magement and operations.

If this sounds like it may be the ideal destination for your exit journey, then your exit route – and the actions you take – need to be set up to help you – and your business – transition to a more strategic, guiding role.?The role of Chair of the Board or Company President in other words.?Now note that this does not preclude you from selling all or some of the shares that you have in the business.

However, if you are intent on this latter course, timing will be everything to ensure that you, personally, do not become part of the deal before you have transitioned into your new role

2. Stepping Aside

This is the step for you if you don’t want to sell the business to an outside buyer, and you also don’t see yourself in the role of Chair or President.?Over the years, I’ve found that this step is most often taken by the CEOs of family-owned businesses, as they transition the reins of leadership to the next generation.

If this is likely to be your preferred option, there are several things you need to consider – not least of which is who you are planning to hand over to.?Are they happy to take on this responsibility? ?Have you ensured they have the skills and training to step into your shoes? How will this be viewed by other family members – and by other people at a similar level to them in the business who are not bound to you by ties of blood or marriage??

In this scenario, you will also need to find a way to unlock the value that you have created in the business over the years – without financially crippling your chosen successor.?And you’ll need to decide how many shares you want to hold onto, which will give you an on-going revenue stream in terms of dividends, as opposed to a larger lump-sum.

3. Stepping Away

This is the option for you when you don’t want to stay on, but there’s no obvious internal or family successor.?You’re ready for the next stage in your life journey, and so you have decided to sell your business.?But this route can be the one with the most challenges – not only for your long-term financial stability, but for the future of the business and your employees.

Questions to ponder before choosing this first step include who are you going to sell to – a MBO, an MBI, or an external sale??Do you put your business in the hands of a broker??Do you know what your business is actually worth, as opposed to what you think it’s worth? Do you understand the timescales needed to get your business in the best possible shape for a sale??(Hint – it’s much longer than you think – plan for c. 3 years.)?

Finally, don’t discount the emotional ties you have to the business.?Contrary to popular belief, the thing that causes the most regret in this kind of business exit is not the moolah (or lack of it), but the realisation that you’ve sold your “business baby” to entirely the wrong kind of buyer.?One who is going to sell your employees down the river, and trample all over your company vision and ethos.?When you’re doing YOUR due diligence for the sale, it’s time to listen to your gut and make sure that there is a good cultural and ethical fit before you sign.

4. Stepping Out

Stepping out is really the nuclear option as an exit route.?It’s reserved for when you come to the conclusion that the market has changed – and you don’t have the time, skills, or ability to pivot with it.?Where there is no longer a real driver for growth in the business, very few assets apart from the intellectual capital of the owner and employees, and no real chance of becoming an acquisition target.?

It can also be driven by challenging economic circumstances – and, my goodness, we’re certainly living through those at the moment! When it becomes clear that there is no realistic way that the business can continue to trade its way out of a crisis, or when the cost of servicing debts is higher than the income generated.

And although liquidation or closure of your business can be seen to carry a lot of stigma in the UK, this choice is one that should carry absolutely no shame (unless there has been some serious shenanigans going on).?The only thing I would say is that, if you are an employer, you have a moral duty to make sure that you do the right thing by your team in terms of redundancy and help to find a new role.

The great sage Lao Tzu said: “A journey of a thousand miles begins with a single step”.

Deciding your end point is your first step in planning your eventual exit – and it will also determine whether your journey is of a thousand miles, or a short stroll down the road.?

Why?

Because there is a strong correlation between the end-point you choose, and the amount of time it will take you to reach it.?

As a general rule:

• Stepping Out can be done in as little as 6 months, depending on the circumstances.
• Stepping Up will take at least a year to achieve, but you’re better planning for 18 months to get everything in place
• Stepping Aside usually requires 2 years – sometimes more – to ensure your replacement is fully ready to take over.
• Stepping Away will require 3 years – and it will be some of the hardest work you’ll have done since you started the business – but with potentially the greatest reward.

In the next issue of this newsletter, I’ll talk about why the exit process is the worst possible time for you to take your foot off the growth gas.

Meanwhile, if you would like someone to help you get out of your tightly laced Scarlett O’Hara costume and start thinking about your exit plan today, then you can book a completely free and utterly confidential first call with me at https://bit.ly/ExitOptimized , or scan the QR code to get started.

Carri Nicholson, The Leader Whisperer? is the Founder of Growth Circles (un) Limited - a unique Leadership Mentoring, Coaching and DEI/Culture consultancy, working with global clients to deliver high impact learning journeys, exit and succession planning, cultural transformations, and bespoke growth and DEIB programs.