“Begin with the end in mind.” -Stephen Covey, speaker and author of The Seven Habits of Highly Effective People
Serving clients and growing the practice. For many people in your shoes, those are the two tenets that drive most decisions. That’s great, but you also need to factor in where you’re headed, right?
You will leave your business. It may not be today or tomorrow. It may not be by choice, but you will leave your business. Do you have a plan for that? When you leave, what would it look like? If something happens and your exit unexpected, what happens to the firm? A plan not only provides context and the basis for adapting to new and unanticipated events, it also provides alternatives based on assumptions about goals, objectives and resources that may need revision.
Unfortunately, even owners who have business plans fly without Exit Plans to help them when storms force them to alter course toward their business exits. If an unanticipated event arises (such as a deterioration in the economy), they shelve their exit planning thinking (and thinking is all they have since they haven’t created a written plan) because their only option is to wait for conditions to improve. These successful owners would never consider a similar passive response to be acceptable in a business plan.
If the importance of an exit plan isn’t obvious yet, consider this:
First, according to a PricewaterhouseCoopers’ survey of 364 CEOs of privately held, fast-growing companies, 65% planned to exit within a decade. Translation: there may be a glut of companies on the market which may drive down the value of your firm.
Second, if you’re a Baby Boomer, the generation following you is smaller in size so expect far more sellers than buyers in the marketplace.
Third, even during boom times less than half of the owners who tried to sell their business actually were able to sell (2005 Business Reference Guide, Tom West).
Fourth, if you choose to wait for rising tide in the economy and the M&A market to exit, you’ll lose control of the timing of your exit, how much and the terms of payment you’ll receive, and even the type of buyer.
Exit planning is what we mean by working on, not just in, your business, and it pays off long before you leave. The process of creating a plan involves determining the firm’s current value, the factors that may have the biggest impact on future value, and taking time to consider what different exit options might look like. These are all factors that can, and should, play a role in short-term decision-making; providing one more tenet to guide you.
When you begin with the end in mind, you’ll know what to do when you get there despite the glut of sellers, dearth of buyers, volatility of the market, and the myriad of known and unknown influences on your business.
One of the most successful entrepreneurs and planners in American history, John Pierpoint Morgan, said, “The wise man bridges the gap by laying out the path by means of which he can get from where he is to where he wants to go.”
Register here to uncover the power and direction that exit planning affords you in this free online webinar.
by Jeff Johnson, CPA and Tom Siders, CPA. Jeff and Tom are founding partners at L. Harris Partners, a national consulting firm focused on providing owners and partners with a straight forward approach to strategic planning, growth, profitability, and transition.