Common exit problems
financial checklist for exiting your business (5 tips to ensure paying yourself more)
Build wealth in your business to support your exit strategy.
Obviously, for your business to be able to run without you, you need to assemble a strong supporting cast of employees. Entrusting your business to someone else is a challenge that almost ever entrepreneur will experience during their career. Hiring for a possible successor to your business is nothing to be taken lightly. One of the biggest challenges I hear from business owners when entertaining their possible replacement is trying to find someone who is not risk adverse and not to be afraid to put their money where their mouth is. In other words, they want someone to be willing to write a check to be at the table.
Here are a few of the fundamental challenges with this belief:
- Are you looking for a bank or a successor? Not everyone has the financial means to enter the ownership game. Ultimately, if someone can write a big enough check, then it gives you your exit strategy. If there were other means for the business to fund a successor, would that be a viable alternative for the business owner?
- Is sweat equity another option? By having deferred profits of the company held in trust for a potential candidate, could that not be an alternate solution to having to write a big personal check?
- Don’t look for another version of yourself: Considering there will likely be an overlap between ownership groups, ensure that strengths are not necessarily duplicated. Make sure that you have complimentary yet different skillsets to offer the company.
- Put something in place as quickly as possible: The challenge with many businesses is a succession plan is thought about when the business owner is thinking about leaving the business, instead of well in advance of his or her exit from the company. A well thought out exit strategy should be considered 10-15 years in advance of the anticipated planned exit. This allows sufficient time to fund a buyout and allow for the proper transition of power.
- There is no replacement for passion. One quality that a potential candidate must exhibit is passion. Passion for the business, passion for the people and passion for the vision of the company. Without this quality, transition of power and the support of the employees will be challenged.
- Decisions can always be changed. With every good plan, there needs to be a contingency for change or things not working as planned. Finding a suitable successor may not pan out. Shares or funds can be held in trust or in escrow until the execution of the deal is formalized and the business is ready for transition. Remember that a well thought out exit plan for a business owner should plan for shutting down the business as a worst-case scenario in case the sale of the business doesn’t come to fruition.