Most business owners will put off exit planning even if they are serious about retiring or transitioning into something different. That’s because exiting a company is something the majority of owners do not have experience with, and it can seem very intimidating. We’ve talked about many of the challenges involved in exiting on this blog, including building the company’s value and finding and developing capable management to take over or assist the new owner. One very helpful step to take towards an eventual exit would be to make a written exit plan. When an owner takes the time to write down his goals and the steps he plans to take to meet them, there are many clear benefits.
Benefits of Having a Written Exit Plan
The very first benefit of writing down an exit plan is that it forces the owner to think everything through. Too many business owners fall prey to the “rolling 5-year plan” temptation. They are always planning to plan down the line, but they never actually do anything. Writing down a plan forces the owner into real decision making. Some of that decision making will be hard, other parts may be easy. The owner must confront his future plans, both personal and professional, his economic needs far into the future, and the strengths and weaknesses of his company. Those are things people would rather not think about, but for a successful exit to happen, they absolutely should.
The second benefit is that it increases clarity. A written exit plan requires detailed planning. The owner must know the specifics of the company, starting with a good business valuation, and be specific about what needs to happen in order for the exit to be successful. This includes determining what roles other people need to play during the transition and after.
Because creating a properly written exit plan requires the cooperation of other people, it also creates the necessity for better communication between the owner and his transition team, his family, and his company’s management and workers. Different people will have different needs, so there will be many conversations and negotiations about goals, resources, and individual needs. Eventually, once these have been determined and decided, everyone involved will know better what the true situation is. It’s much easier to move forward with a plan when you know exactly where you are starting from.
Another very large benefit of a written exit plan is that it increases accountability, both in the owner, who has had to determine the plan and communicate with everyone involved, and those who will help implement it. A good exit plan will assign specific roles to family members, a team of experts, and key management within the business. Once everyone has an expectation that the exit plan is part of the company’s future, it’s much harder for the owner to procrastinate or ignore it. Everyone else’s futures are also on the line, and they will ask about how the plan is progressing.
Hiring a team of exit planning advisors adds another layer of accountability. These people’s expertise will help the owner to create benchmarks and determine over time if those benchmarks are being met. While it may seem to some that creating a written exit plan forces the owner’s hand, it really allows him to maintain an element of control over the process. Knowledge is power, after all. The owner may realize that he can retire much sooner than he thought or he might learn that much more work has to be done in order to retire within a certain time frame. He will make decisions based on the actual health of the company and his goals and not what time or chance tosses his way. His advisors are there to make the process easier on everyone.
A written plan also saves time and money over the course of the transition because it outlines who is responsible for what from the beginning. The owner can communicate and follow up based on an already determined timeline and communicated expectations – not because he’s panicking about selling the business and suddenly has to find people to help him out.
Of course, a written exit plan is meant to be flexible and can change if the owner’s goals or the company’s needs change. When that happens, it’s important to amend the document and communicate that to all involved so that the benchmarks will be measured and the new goals will continue to be met.
If you are a business owner who does not have experience with writing an exit plan or the exit planning process, don’t panic. That’s what we at Prometis Partners are here to help you with. If you’d like to begin the process of creating a written document that will serve as a guide for you, your business, and your family through this transition, call us today. It’s never too soon to begin planning an exit.