It doesn't matter if you have been in your business for 10 months or 10 years; creating an exit strategy is one of the most valuable things you can do for your business. Yet, very few entrepreneurs want to talk about it. At our business growth events, we find that only a fraction of the attendees—driven, passionate leaders—have plans for exiting their company.
And we get it. You love your company. It's like another child you've invested your heart and soul into. Why would you want to talk about selling it?
But the truth is that a company without an exit plan is just a hard job with a lot of risks.
Even if you don't intend to sell your business in the near future, you have to run it as if you are.
You will run your business differently if it is possible to sell it. You will be more strategic, more efficient and more profitable.
Having an exit strategy is the difference between working a job until you are exhausted with nothing more to give and leveraging your company into self-sustaining success. The point of owning a business is to create systems that thrive and make money even when you aren't there.
Executive business coaching can guide you to create a transition plan that aligns with your company values and your personal goals. That way, whether in one, five or 20 years, you'll be prepared to pass on a thriving company and set yourself up for the life you've dreamed of.
The what and why of an exit strategy
An exit strategy is a plan for removing yourself from your business in a way that maximizes your benefit and the future of your company.
There are a variety of motives for exiting a company. Yours may include:
- You have accomplished everything you wanted with the company and are ready to move on to a new business venture.
- Your goal was for your business to reach a certain amount of growth. You reached that goal and are ready to sell.
- You are ready to step away from the day-to-day operations of running your business.
- You want to retire so you can travel, invest in a hobby or spend more time with your family.
- Your business has become sufficiently profitable and is ripe for a lucrative sale
How will a business coach help you develop an exit strategy?
The first thing a coach will do is help you clearly define your personal and business goals. These goals include things like the valuation you want your company to reach and the date you'd like to leave. You also want to define your personal goals—what do you want to do after you leave the business? What kind of legacy do you want to leave behind?How much money will you need for the lifestyle you want?
It may be hard for you to value your own company or see its weaknesses clearly. A business coach offers clarity and an outside perspective. They will give you an accurate assessment of where your business is so you can chart a path to where you want to go. They can identify weak points and blind spots and anticipate concerns of prospective buyers.
Once you have gotten clear about your goals and where your company is at, you'll craft your exit strategy and an actionable plan for getting there.
Types of exit strategies
Every transition strategy has its pros and cons. There is no one-size-fits-all plan. An experienced coach will help you create a strategy that aligns with your personal and business values and goals. To give you an idea, here are a few common exit plans with pros and cons.
Sell half the business in its prime
Most people hit the peak of their careers and business when they are in their physical prime. As they age, they find they want to spend more time with their family and away from the company. The problem is that their company slows down and loses value right when they want to sell it. Instead, with this strategy, you sell half your company while it is in its prime.
You get to continue growing your company, mentor your successor, and have a built-in buyer at the end. You can step away from the company slowly while ensuring your legacy.
The drawback is that you are still tied to the company, but you are no longer the full decision maker. You might clash with the buyer in terms of value and culture, adding stress and pressure.
Employee stock option plan
An employee stock option plan (ESOP) allows you to sell some of your company (as stock) to your employees through a trust. It's a retirement plan and a way to transition ownership.
It has the benefit of giving you, the owner, liquidity and a meaningful role in the company going forward. It is ideal if you want a gradual transition and want to maintain some control over your business. You can assure your legacy and take care of your employees while also giving them true ownership in the company.
On the flip side, it can be complicated to set up and only works for healthy, profitable companies. It needs continued cash flow to function.
Acquisition
This is the most common exit strategy for owners selling a business. You find another company that wants to purchase your business.
If you find a buyer who appreciates your value, you can make a significant profit. You get a cash windfall to invest in your next business or endeavor.
The downside to acquisitions is that you give up all control. They can be messy and uncomfortable, and you may watch valued employees get laid off.
The rocking chair test
If you're having a difficult time deciding if it's time for you to transition, try this exercise:
- Identify the decision you're unsure about
- Imagine your future self—Picture yourself years down the road, sitting in your rocking chair, looking back on your past. Ask yourself, "What am I most proud of?" "What dreams did I chase and what ones did I let slip away?" If you sense a dream sliding away or start to feel regret, let that drive you to action.
- Take immediate action—Never leave a place of decision without taking action that will force you to follow through. Send an email, enroll in a class or enlist an accountability partner like a coach.
Begin with the end in mind
The good news is that the same strategies and adjustments that will prepare your business to sell in the long run will also make it more profitable in the short term.
You want to be a business owner, not just a business operator, which means building a company with the end in mind. Whether you are wildly passionate about your job or are heading toward the door, a solid exit plan is something every business owner needs.
