Business Owner Exit Strategy: Don't Loose Your Right to Choose
In October 2003 Eyes Wide Open (EWO) conducted extensive research on Exit Strategies. Focussing on the central question of what does it really take for business owners to successfully extract themselves from their business. The research focussed on business owners - those that had planned for their exit (minority) and those that hadn't. The results were truly eye-opening and published in a report "An Elegant Exit".
Since then exit planning has become one of the hottest issues for small and medium sized businesses.
At some stage all business owners want to reduce their working hours and sell (or hand over to a child) their business. However when the time comes, they are so inextricably tied to their business, that if they leave, their business will die and the full potential of their investment will not be realised.
CPA STUDY SHOWS ALARMING RESULTS
As a CPA Australia study has found, this has far reaching ramifications for business owners and the wider economy. The survey on succession and exit planning was conducted with 600 small businesses (independent and employing fewer than 20 staff) and 105 CPA accountants in March 2004.
"66 per cent of owners plan to use their business as their primary source of retirement income." CPA Australia's Business Policy Adviser Judy Hartcher said the figures showed cause for concern. "With almost 40 per cent of owners planning to leave within the next five years, we may see an increase in small business owners not being able to sell their business to fund their retirement."
"Small business owners need to get smart, plan and prepare for their business succession or exit, years in advance of their retirement, for the best results. Even if they are closing their business, planning will make a big difference to the amount they walk away with. Leaving their exit planning to the last minute is not a good strategy," advises Hartcher.
So if Exit Planning is so important why do so few people take action?
These are the most common reasons we've found for people being complacent about exit planning:
- Fail to recognise short and long term benefits of exit planning
- People 'fear' life beyond business and the 'unknown'
- Inability to make a separation between their own identity and the business' identity (particularly an issue when the business is named after the owner)
- The issue just seems 'too big' and day-to-day activities are given priority over strategic planning
These are the challenges other people have faced, but what's holding you back?
Exit planning brings immediate benefits
Those who have taken action are often pleasantly surprised to find immediate benefits. Their concern about diverting their time from what seems more urgent and important quickly turns to "why didn't I do this sooner?". Businesses we have found the immediate benefits to include:
- More profit
- Higher efficiency
- Greater peace of mind
- Clearer focus
The benefits of exit planning are not restricted to the time of your exit - you benefit now.
Taking the first step
Professional guidance through the exit planning process is essential. The source of that support may be your accountant, lawyer or Eyes Wide Open.
"It is a concern that many small businesses are not maximising their business value by planning their exit in advance or seeking professional help when they have no experience or skills in selling a business. If you sell your house, you would get professional help to renovate it and negotiate the best price on the market. The same rationale should apply to selling a business," said Hartcher.
One of EWO's clients, Penny Spencer of Spencer Travel, recently invested in developing her own Personal Exit Plan.
"I used an external consultant as they are the experts, I didn't know where to start on the Exit Plan and needed some expert guidance . I had already been on EWO's website and enjoyed what I read and it sparked my interest by doing the reality check questionnaire. " says Penny Spencer.
Independence and freedom to make your own decisions are two of the major motivators for people establishing their own business. Yet, by not planning your exit from the business, you are giving up your right to decide. To choose when you can leave and to choose the kind of lifestyle you want in the future.
The worst case scenario of putting together and following an exit plan? It will increase the value of your business and give you more freedom - more choice over how much time you want to spend in the business.
So why delay it?
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