“What is my exit strategy?”
This likely isn’t the first question a business owner asks when opening a business–let alone the second, third, or fourth question! Focus is better spent elsewhere when getting a business off the ground. At some point, however, the question of exit strategy should re-enter. A Mass Mutual Life Insurance survey found that less than half of founder-led businesses who expect to retire in the next 5 years have chosen a successor, and many are unprepared for how to handle a transition.
Research has shown that the majority of family-owned businesses have not started the crucial steps for a successful ownership transition. What do the numbers show? 80% of family-owned businesses are still being controlled by their founders. A large portion of those founders are Baby Boomers who will have little choice but to retire in the near future.
Many baby boomers who started businesses in their younger years are at or nearing retirement age. Yet 55 percent of CEOs have not chosen a successor, and an even more shocking number of 13 percent said they would never retire.
While the global pandemic has disrupted many businesses’ long-term plans and created reactive conditions, there has never been a better time for company founders to pause and consider their long-term options. Consider these four steps to help shape a transition strategy.
Be proactive about developing a strategy
No matter if you are excited about developing a strategy, or dreading thinking about leaving your life’s work, the best thing you can do is to get started. Experts recommend creating a plan a few decades before a business owner plans to retire.
Some of the options that owners can take are liquidation, keeping the business in the family, selling to employees, or putting the business on the market.
Know your value from a buyer’s perspective
You might know your business inside and out, but understand what a potential buyer will be interested in besides the market value. Potential buyers will be interested in what drives the revenue, the intangibles like client relations and location, and most importantly, that someone has a high motivation to sell.
The reality is that most businesses must change hands eventually. Buyers are aware of the inevitable shifts in leadership and are eager to have a shot at a well-established company.
Seek external opinions and perspectives
It’s essential to be open-minded. Ask questions to diverse groups: the next generation might have new ideas and different directions for the business; your peers within the same industry might have different priorities; and other similar family businesses might have advice to offer.
Business brokers and M&A advisors are another resource to tap. Look for those who have a reputation of trust and integrity—many advisors want you to be prepared and understand what buyers are looking for in a business.
Establish your formal plan in writing
Even if you have a hypothetical plan in mind, it is crucial to document it. Putting your plan in writing can establish a healthy view of the future and provide a sense of hope. Reach out to your state or federal small-business departments and see if they offer any resources or tools for planning and selling.
In a moment where geography matters less, take advantage of virtual resources such as the Co-Op Dayton at Kent State University’s upcoming free workshop. Get more information about the February 18 session at Eventbrite.
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