Exit Strategy Considerations: Preparing for Your Business Exit
Growing Your “Business 401k” Plan
The problem with many exit strategies is that there is no strategy. Since the majority of your wealth is invested in your business, you should begin to think about your business as a “401K” plan. No matter how long you have been in business, an exit strategy is an essential part of ensuring that your long-term financial interests stay in place, even though a number of scenarios could require you to adjust your exit horizon.
Considering to these two issues may begin to help you prepare for the reasons, timing and manner in which you depart your business in the future. The goal: depart your business on your terms!
You should know the value of your business.
You want to know what you want to sell your business for in the future. Your exit strategy should be anchored by what can realistically be accomplished through a business sale at a later date. We recommend that business owners get an annual evaluation of their business. In the same way that a 401k plan investor gets an annual statement with the account balance, you should know the value of your hard work, and you should focus on building that value. Knowing this value may transform how you run your business and how you approach risks. Too many business owners subject their long term financial interests to unnecessary risks because they do not clearly understand the likely future return on their investment.
Make sure you have an exit strategy that anticipates the unexpected.
There is a strong likelihood that the timetable you have in mind for a future business sale may not come to pass right on schedule. It will likely happen sooner or later than your plan. The time spent preparing for “worst case scenarios” will position you to save time, money, and legal problems. This time investment will help you to avoid stress, heartburn, the loss of your “401k” retirement plan. Below are some scenarios that could cause a major course correction. Do you have an exit strategy that addresses these potential scenarios?
You become burned out, go through a divorce, or a health crisis.
You want something more challenging, more fun or less stressful.
You run short on working capital.
Your business needs new skills, a new approach or resources you can’t provide.
Your partner wants out of the business, dies or becomes disabled.
Your partner gets divorced and needs cash for a settlement.
Develop Exit Strategies that Take These Possibilities into account.
The fact is that very few business people want to spend time considering these negative situations, but reality is that these things can happen, and you want to protect your retirement plan. Wise business owners make the time to address these issues.
A wise saying is that “you shall know the Truth, and the Truth shall set you free.” Spending time now working on your business exit will help you plan for the unforeseen, and will allow you to build and protect your largest investment and asset; your “Business 401k plan.”