When Will Business Owners Take Exit Planning Seriously?

My last posting mentioned that there are a lot of businesses out there that will be coming on the market in the next few years and not many owners who are doing anything constructive to plan for a successful and lucrative outcome. Many owners seem to have their heads in the sand, or simply not the time available to put some thought into what options exist out there to exit their business and what tactics are then required.

By way of comparison I have met two business owners recently going through the exit process, but with very different stories. Both are true stories, but I have changed names to protect their identities.

Owner A (let's call him Jim) owns a small plastic injection moulding business. He has owned it for more than 20 years and is aged in his early 60’s. In recent times it has gone backwards a bit and his original business partner has pulled out, leaving Jim as sole owner. The facilities look tired, but the machines are in good condition. No long term contracts are in place from customers, but they do receive regular orders due to their high quality reputation. Jim still owes a significant amount to the bank for the purchase of one of the injection machines, secured on his private home. The business is in leased premises.

Jim wants to exit the business and due to no long term plan in place is looking at the most likely scenario of selling the machines, shutting the doors and walking away from the business, still owing money to the bank. Not much of a retirement to look forward to.

Contrast this with owner B (Lets call him John). John has owned an optometrist practice, for about 15 years. It started as a sole practice, but it grew to employ another optometrist, originally shared with another practice. About 8 years ago John realized that one day he wanted out of the business and to follow his passion for travel and geology with his wife. A couple of years after that he needed to hire a new optometrist graduate and was lucky enough to hire Sally. When John broached the idea of Sally buying into the business, she was enthusiastic and a plan was put in place. A new company was formed with both Sally and John as shareholders. A shareholders agreement was thrashed out and a share valuation conducted. Over the next 5 years Sally has slowly invested her drawings into buying John’s shareholding and within the next couple of months this process will be completed and John leaves on the first of what he hopes will be many trips overseas with his wife.

Which outcome do you want for your business and your life? Putting some longer term planning in place will help you achieve a successful exit from your business, or at least maximise the chance of a successful exit happening.

Join me in a 2 hour workshop in Albany on March 3 to start this process off and start planning what you will do when your exit plan has been successfully executed. Register by emailing me at andyburrows@iconbusinesssolutions.com Tickets are $49 +gst per business.

Put the Success into Succession Planning

According to a study by the Centre for Small Enterprises at Massey University, during the next 10 years 64% of business owners intend to exit their businesses. For the North Shore, where I live, that means about 16,000 businesses may come up for sale during the next 10 years. That’s 130 a month, every month, summer, winter, good times and bad, for a decade!

If you are thinking about selling your business during that time, do you think you will achieve the sale price you need to fund your ideal future in such a potentially crowded marketplace? Of those business owners who intend to exit their business in the next 10 years, 70% intend the sale to fund their retirement, but 87% have no formal plan on how they will do this.

The message of planning a successful exit from business has not yet been taken to heart by the majority of business owners and this may result in a lot of unfulfilled dreams of a long and happy retirement. The general attitude of: “I’ll get round to it when I have to,” is all too prevalent and the point of early planning to maximise value at exit is lost on many.

To a lot of people, exit planning is viewed in a similar way as painting a house before it is put on the market i.e. something done close to the point of sale. Yet good exit planning should start much earlier. The benefits will be a wider range of exit options and a bigger pay cheque for the owner on handover day.

So what are the recommended steps?

1. Decide to put a formal exit plan in place and include it in the general, long term planning of the business.
2. Determine the strategic and tactical decisions that are required to progress the plan.
3. Look at risk factors that could knock an exit plan off its course, such as: shareholders’ agreements, share types, wills and shareholders’ insurance.
4. Look at all the exit options available and draw up a short list of the most preferred.
5. Establish a personal plan for the owner(s) to make sure as much of this value ends up with the owner(s), with the least tax paid and a long term retirement plan in place.
6. Identify and deal with possible impediments to a profitable exit.

If nothing else, following this process will result in a business that is running better, with higher profits and less reliance on the owner. At best it will result in the type of comfortable retirement that the owner wants and enable him or her to really enjoy the fruits of their labour. Not following it could result in the owner standing in line with lots of other business owners with similar offerings, hoping for a quick trade sale while facing retirement not as well off as hoped. The choice is yours.

To learn more about this process, join me at a workshop on exit and succession planning on the 3rd of March in Albany, North Shore City. Email me at andyburrows@iconbusinesssolutions.com for venue details and time.

A final word:

“The best time to start planning your exit is from start-up. The next best time is NOW!”

Don't Quit!

About September last year I started working with a new client to help him improve his business. He was in a desperate situation. He was working ridiculously long hours because he was taking on any work that came his way, but making no money because of poor credit control and the lack of other management controls. It took quite a while to sign him up as he forever cancelled appointments due to this emergency or that.

Eventually we made a start on the journey to change his business and his life, but no sooner had we been going for a couple of weeks that he "went to ground" again, reneged on his first payment and did not return emails, texts or phone messages. This went on for 3 MONTHS. Me leaving message after message; visting his office in the vain attempt to catch him in, and texting in between times.

Eventually I decided to call him at home one evening. Something that I don't like to do, but the complete lack of response had left me no option. Surprisingly he was glad to hear from me and recounted the stress he had been under for the past couple of months. He actually thanked me for getting hold of him and it looks like we are going to get back on track with the original plan. Here's hoping anyway!

It reminded me of the dogged determination you need to exhibit to be in business. When you get to the point of giving up on something, just try that one more time, make that 1 extra phone call or hang on just that little bit longer. You don' know how close you are to succeeding.

To quote Walt Disney, "The difference in winning and losing is most often... not quitting." I am also reminded of the last verse of a poem I had on my wall from an unknown author.....

Don’t give up though the pace seems slow –
You may succeed with another blow.
Success is failure turned inside out –
The silver tint of the clouds of doubt.
And you never can tell how close you are.
It may be near when it seems so far:
So stick to the fight when you’re hardest hit –
It’s when things seem worst that you must not QUIT.

I think I will print that poem out again and hang it up in my new office.