Have a Business Exit Plan in Place Before You Need It
Your business had a beginning, which means it might always have a potential end. For many owners, unfortunately, that involves running out of money or otherwise going under.
Even if your business is a steady and thriving success, at some point you ought to determine what the “end point” might be, as well as how you’re going to get there. Companies generally don’t last forever, and those that do eventually have to change hands.
Not only will you need to plan for the future of your firm, you’ll need to plan for your own future as well—and the further you plan ahead, the better.
Areas of Consideration
Ideally, exiting a business entails forethought in a number of areas. These include:
- Setting yourself up financially. If your business is your sole source of income (or even a significant wellspring of revenue), you’ll need to take steps to ensure that you’re financially sound when you cease operations. As Savant Capital suggests, one of the best ways to do this is with IRAs (individual retirement accounts). Self-employed individuals have access to traditional and Roth IRAs, as well as special types of accounts called SEP and SIMPLE IRAs. No single rule dictates how you should save or how much, but you certainly have to understand the nature of your finances and where the money will come from when the business is gone.
- The succession plan. According to the SBA, every firm should have some kind of succession plan. In your absence, who would take over the business? Would the outfit continue to run as it has, or will it need to transform in some way? You’ll need to plan for a number of different potential outcomes, especially if you’re thinking years ahead into the future. For example, what happens if your successor leaves the company before you make the move to depart yourself? What would you do in the event that someone makes an offer to buy your business? Would you consider a merger or acquisition?
- Timelines and steps. You also need to think about a potential timeline, and what steps you’ll need to take to get to the end point. For example, are you planning to finish in the next three years? The next decade? And what needs to happen between now and the conclusion? For example, do you need to personally train a successor? Should the business reach a certain milestone or achieve a certain level of growth before you’re ready to shut off the lights?
- Finding something to occupy your time. When you leave your company, all your entrepreneurial energy will suddenly have nowhere to go. It’s wise to find something new to occupy your time when you leave, whether that’s starting a new business, serving as a mentor for other entrepreneurs, or picking up a new hobby.
Practical Tips
The above considerations should certainly give you plenty to think about. If this is your first experience as an entrepreneur, no one would blame you for feeling a little overwhelmed by the prospect of an ending.
So here are some practical tips that will reduce your stress and enable you to make better decisions for the upcoming transition:
- Start early. Starting early gives you a number of advantages. You’ll have ample time to think things through so you don’t have to stress or rush your final decisions. This also gives you flexibility in case your original plan doesn’t pan out the way you expected, and it provides your retirement accounts more time to generate interest.
- Think about why you got started. When you’re making choices, try to remember your main motivations for starting the business in the first place. Was it to create a legacy for your family? Maybe you should offer it first to a family member, then. Was it because you’re truly passionate about the cause or idea? Identify a way to stay involved even after you’ve officially stepped down.
- Hedge your bets. No matter how carefully you plan, odds are that things will go wrong. Make sure your plans include built-in redundancies and also have a backup plan or two in case things really go south. Invest in multiple candidates and multiple strategies to increase your likelihood of success.
- Seek advice. Experience often leads to the best decisions, but you’ve probably never exited a business before, so your best course of action is to seek advice from people who have: business mentors and other entrepreneurs. Ask them what worked, what they’d do differently, and if they have any words of wisdom to prepare you for the transition.
Depending on how you currently feel about your business, your exit may be a day to look forward to or a bittersweet ending to an amazing journey. Either way, you’ll feel much better about the process and ensure that both you and your business survive and remain healthy if you plan ahead and prepare for the shift in as much detail as possible. There’s no excuse not to start right away.
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