Exit Planning Needs to Begin Way Before You Plan to Exit

As a business owner, exit planning should be integral to your strategic planning almost from the moment you conceive your business idea. Many new business owners understandably prioritize launching, stabilizing, and expanding their companies, as these foundational activities demand intense focus and dedication. However, integrating at least a preliminary vision of your exit strategy—even in the earliest stages of business planning—can significantly enhance your prospects for sustainable growth, long-term success, and optimal valuation when the time comes to sell.

Unfortunately, too many business owners overlook exit planning, resulting in diminished returns and unfulfilled potential. Understanding how pervasive this oversight is and why it matters can inspire proactive planning. Consider these unsettling statistics:

• A survey from Sunbelt Network reported 57%-67% business owners with companies valued between $500,000 and $5 million had no exit strategy in place.
• According to SC&H Group, most business owners have 80-90% of their wealth tied up in their company, while less than 30% of businesses that go to market will sell.
• Industry experts warn last minute exit planning can lead to fire-sale scenarios and lower-than-expected offers. Studies indicate business owners who don’t plan properly can lose as much as 20-50% of their potential value due to rushed sales​. (Sunbelt)

Why Business Owners Delay Exit Planning Too Long

Nobody is claiming you need to have a comprehensive exit plan before you ever land your first customer, but waiting too long can lead to a decrease in business value, limited buyers, and hasty decision-making.

Lack of Time

Business owners routinely face overwhelming responsibilities, juggling diverse roles from operational management to financial oversight, customer service, and marketing. In smaller businesses especially, these owners often wear multiple hats, managing numerous critical tasks simultaneously. The intense pressure to manage daily operations and pursue growth frequently leaves little time or energy for longer-term strategic planning, particularly concerning eventual exit.

Economic Uncertainty

Another reason many business owners hold off on planning their exit, particularly lately, is due to uncertainty in the economy. But delaying planning due to market concerns is misguided at best. Imagine the owner who held off on starting their exit strategy until February 2020, expecting a sale within the ensuing year. Had that same owner been exit planning far in advance, their options would have been exponentially greater.

Start Exit Planning Sooner Than Later

Even if selling your business feels distant or abstract, initiating exit planning early provides multiple strategic advantages. Ideally, exit planning should begin concurrently with business planning or at least as soon as your business stabilizes and begins generating steady revenue. Early and thorough planning affords greater flexibility, enabling business owners to optimize their company's value incrementally and sustainably over time.

Early planning provides several critical benefits:

Enhanced Valuation: Regular evaluations and improvements identified through ongoing exit planning contribute directly to increased business value.

Operational Improvements: Identifying and resolving operational inefficiencies early can substantially enhance overall business performance, profitability, and market appeal.

Greater Flexibility: The longer your planning horizon, the better positioned you are to adjust your strategy as circumstances evolve, giving you more choices when you ultimately decide to sell or transition.

Reduced Stress and Uncertainty: Planning proactively reduces anxiety and enhances decision-making clarity, significantly reducing the stress and uncertainty associated with business transitions.

The longer your preparation runway, the smoother your eventual transition is likely to be, ensuring alignment with your long-term goals and ambitions, both personal and professional.

Click here to read “Are You Ready for Your Exit? Creating an Exit Strategy.”

5 Quick Tips for Planning Your Exit

1. Define Your Exit Goals

Articulate precisely what you envision for your eventual exit. Whether your ideal scenario involves selling to an external buyer, transitioning leadership to a family member or trusted employee, or remaining involved as an advisor post-sale, clarity about your desired outcome is foundational.

2. Determine Valuation Early and Often

Evaluating and understanding the market value of your business on a regular basis can help you make informed long-term decisions. Regular valuations help you gauge progress, identify potential weaknesses, and ensure that strategic decisions are informed by accurate data. This practice allows you to recognize valuation opportunities or risks early, positioning your business optimally for sale when the time comes.

3. Build a Strong Leadership Team

A robust, capable leadership team significantly enhances business value. Buyers prioritize organizations with demonstrable managerial strength, reducing their perceived operational risk. Consider a comprehensive leadership development and alignment program. Proactively developing and aligning your leadership team through training, mentorship, and succession planning will simplify your eventual exit and ensure your business remains attractive to potential buyers.

4. Get Your Books in Order

Potential buyers scrutinize financial documentation meticulously. Ensure your financial records are clear, comprehensive, and consistently updated. Addressing any outstanding financial or legal issues early will streamline due diligence processes, maximize your business’s valuation, and prevent costly delays during a sale.

5. Seek Support

Navigating the complexities of exit planning requires specialized expertise. Engage the services of a business coach, peer advisory board, financial advisor, business broker, or exit planning specialist. These professionals offer invaluable guidance, helping you avoid common pitfalls, capitalize on market opportunities, and achieve the best possible outcome for your exit.

Embrace Exit Planning as a Strategic Imperative

Ultimately, your business exit is not merely a final transaction but the culmination of careful, intentional, strategic planning implemented over time. By embedding exit planning into your broader business strategy early, you position yourself and your company for long-term success, increased flexibility, and optimal financial outcomes.

While selling your business may seem like a distant event, the decisions you make now profoundly impact your future opportunities and the eventual success of your exit strategy. Begin preparing today to ensure a rewarding, seamless transition that aligns with your goals and secures your financial legacy.