Whether it’s two or twenty years from now, you will have to plan your exit strategy at some point. The process of exiting a business can be incredibly tedious, which is why proper planning is the key to turn your business over to someone else in the best way possible. And since there’s a lot of factors that can affect a business exit, there are also plenty of mistakes that can be made during exit planning.
If you want to make a clean exit with as minimal emotional, financial, and mental turmoil as possible, here are exit planning mistakes to avoid:
1. Being too attached to your business
A business is something that you build from the ground up with years of work, hardship, and sacrifice. That said, it is perfectly understandable to have deep emotional bonds with your business, much like everything else that humans pour a lot of their time and energy into. However, this emotional connection to your business can be the first thing to affect your judgment when it’s time to let it go, likely leading to negative outcomes.
If you are one of those business owners who treat their businesses as their “babies”, it’s best to start emotionally distancing yourself before you even plan your exit. This will help you see your business more objectively, which will eventually lead you to make better judgments in the future.
2. Waiting until you need to sell
Many business owners wait to plan their exit until they must sell, either because of their busy schedules or the avoidance of the negative emotions that come with retirement planning. Before you put up your business for sale, however, it’s incredibly important that you have an exit strategy that fully articulates your goals, the process involved in selling, and the best choice for liquidity. This is highly unlikely to achieve if you only start planning until you need to sell your business.
3. Not considering the next leadership team
When planning an exit strategy, one of the most important questions that you need to ask is: “Which people will be the best fit to lead the business when I’m gone?” As the original owner, you probably don’t want your business to suffer even if it is already someone else’s problem. But even if you don’t feel that way, consider this: many buyers want companies that will retain strong management after the deal is closed. If you prepare your management ahead of time, it will help increase your chances of attracting a good buyer and make the transition process as hassle-free as possible.
4. Ignoring other liquidity options
An outright sale (or selling 100% to a third-party) is not your only option when selling your business. There are a lot more liquidity events that you can consider, such as:
- Management buy-out
- Employee stock ownership plan
- Sale to a financial buyer
- Sale to a strategic buyer
- Intra-family sale
- Selling partial ownership
5. Not getting help when you need it
Planning an exit strategy on top of running a business can be exhausting in more ways than one. Trying to tackle it yourself can make more room for errors and eventually make your exit difficult when it’s time to sell. Hence, it’s a good idea to hire a business exit strategy advisor to guide you through the process and help you get a successful sale.
6. Not training successors enough
If you are planning to pass your business down to the next generation, you should not assume that they are fully ready to take the reins, even if they’ve spent years watching how things work. Way before you pass on the torch, train your successors with a formalized training program to help them acquire all the skills needed to run the business effectively. Formal education may also be incredibly helpful, but it’s not always necessary.
7. Failing to properly value your business
One of the first steps of planning an exit strategy is determining how much is your business really worth. If the value meets your exit goals, it’s indicative of a good exit. Otherwise, you will have to increase your business’s value until it meets your goals.
8. Not planning for post-exit life
Part of exit planning is thinking about what you want to do next. What do you want to do after you retire? And how much money will you need to do the things you want? Thinking about the future with your business can incite fears of the unknown, but it’s a necessary step to make your post-sale life easier.
Exiting a business is one of the most significant events in an entrepreneur’s life. Make it a wonderful experience instead of a painful one by avoiding these exit planning mistakes early on.