Exit Planning

When a small business opens its front door, the founders should also prepare for the day that door shuts.

From day one, small business management advisors encourage clients to have both an operating philosophy and firm convictions as to what are the founder’(s’) ultimate exit goals. The two together can provide consistent guidelines for management decisions. Unfortunately, even as the business, social, and political environments change rapidly, this dual track is seldom followed.

Any organization’s trajectory ends in one of four ways: long-term success, failure, closure, or limping along until the founder(s) abandonment.

Every founder begins their new venture with boundless energy. Successful entrepreneurs throw their hearts and souls into building a successful enterprise. When asked, the entrepreneur will lay out their plans for some initial period, identify the critical elements to making the venture successful, and devote the money, personal resources, and energy to succeed.

But what? Most entrepreneurs need help deciding that an exit strategy is necessary. In the 20 years, Small Business Digest has conducted interviews and focus groups, less than 4% of respondents in the first two years of their company’s existence had an exit plan. For those leaders in companies entering their third through sixth years, only 18% offered some planning for being ultimately rewarded for their hard work.

But in the hot atmosphere of a company’s formative years, the founder(s)’ personal goals and preferences may prevent them from executing the company’s best exit strategy. 

For example, often working beyond normal levels, employees of newer organizations in all sectors overcome challenges to the company’s future. The success of these efforts generates intense loyalty and sacrifices between employees and founders. As the company meets these obstacles, employees become more invested in its success.  

But in any company’s business cycle, there comes a time when an exit strategy becomes necessary. 

Often, it is a period when the company is “right-sized.” This motto is another term for firing staff. 

For many entrepreneurs, letting staff go is the most brutal and least favored option. Often, small business leaders are not open to cutting staff adrift. This dynamic can cause company leaders to continue leading a bloated organization, thus passing the point where it can fetch the highest price.

If your small business is entering its sixth year, you can look at five to ten more years of success. But today is the time you should be settling on some exit strategies.  

Ask yourself these five questions. Your answers will lead to others, but these are good starting points.

1. How long do you want to work leading this company?
2. How long do you want to work before retiring?
3. Do you have plans to groom a successor?
4. When do you think the company will have its highest profit probability?
5. Are you happy with what you are doing every day?

Your answers may surprise you. The key is determining what you want for yourself and your family.

Start your exit planning today, it will guide you and your business to a more successful future and ultimate exit.