Owners of businesses with 20 or fewer employees have limited options for their eventual exit — private equity, ESOP’s, IPO’s, or a sale to a strategic buyer are typically not options except in rare situations.
Most often owners of smaller businesses have these 3 exit routes available :
Third-party sale
Transfer to family
Employee buy-out
The cost of comprehensive transition planning for mid-market enterprises ($5 to $50 million in revenue) can range from $30,000 to $300,000 or more.
While owners of smaller businesses (< 20 employees) typically don’t have the number of exit options the owner(s) of a larger business would, planning is still needed even though the sale/transfer can usually happen with much less extensive and less costly planning and preparation.
The following are some key elements of a successful plan:
Clarifying Exit Goals and Objectives. The following are three questions that every owner will need to answer at some point:
When do you want to leave?
How much $$$$ will you need for retirement or life after the business?
To whom would you want to sell/transfer the business to?
Financial Gap Analysis.
Quantify personal and business resources.
Create a cash flow analysis and projection.
Calculate an estimate of value for the business.
Personal Vision Statement for Life After the Business.
Life & retirement objectives.
Charitable/community objectives.
Legacy objectives.
Operational Analysis.
Management succession.
Owner’s centricity to the business.
Advisor Team.
Identify the “experienced” advisors needed to design and implement the plan.
If you’re one of the 4,000,000 business owners (on average 350,000 per year) who will seek to leave their business in the next 10 years, it’s quite possible that you’re thinking you will take the traditional exit route of listing your business for sale with a business broker and waiting for a buyer. The reality is that brokers in the U.S. list about 50,000 businesses for sale each year, and eventually sell about 20% of those.
Exit planning is the process of examining all your options and being prepared when the time comes for you to leave. Regardless of which exit route you choose, you will significantly increase your chances of a successful exit if you begin planning sooner rather than later. Creating a plan doesn’t force you into a specific time frame, as the timing for implementation is up to you, it simply helps you to be ready when the time comes.
You can get started today with the FREE ExitMap® Assessment™ and our ExitReadiness® virtual planning resources.
