Why You Should Have an Exit Plan Even When You Have No Plans to Exit Your Business
By Jack Lyons, Mergers & Acquisitions Advisor and Certified Exit Planning Advisor (CEPA)
Anyone who pushes you to exit your business before you choose to is clearly out of line. After all, if you’re the founder/creator/owner of the business, shouldn’t you also be the one who gets to say when you should leave? I think so. Over the years, I’ve learned that it is a big mistake to push a business owner to make a merger & acquisition decision to leave a business before he or she is ready. However, as a business owner and leader, you have a responsibility to prepare the business for the inevitable. There’s no escaping the reality that someday you will leave the business voluntarily by retiring and turning it over to someone else (possibly staying on with the new owner for a period of time), or by starting a new business, or involuntarily due to an illness or a life-and-death crisis. The result is the same: we all have to leave someday; it’s unavoidable.
One thing that many business owners have in common is that they find more satisfaction in staying active in their companies than any alternative they can consider. This happens no matter what their age, their accomplishments, or their financial success. Business owners are unlike employees who may retire because their friends are retiring or because they become eligible for Social Security. Business owners have an emotional attachment to their work and their company. However, I think oftentimes business owners’ satisfaction in staying active in their companies is closely aligned with a fear that they will find little significance in life without identifying with their profession. I base this statement on the number of times I’ve heard a business owner say, “I don’t know what I’d do if I didn’t have my business to go to every day.”
An owner’s feelings about his or her business continually evolve. At some point in time, the business may not be so central to their life. When this happens, the owner will probably either want or need the flexibility and freedom not to be as involved with the business as before. This kind of change can happen as a result of a change of mind or a change of circumstance. What if the owner hasn’t planned for this? I can speak from personal experience about my life changing overnight and the effect it had on my ability and willingness to be able to focus on my business each and every day. I was lucky enough to have the freedom to pursue what I wanted. But what a terrible fate it is to come face-to-face with life, and because of business responsibilities, not have the total freedom to do what you really want to do, when you really want to do it.
Engaging in comprehensive exit planning doesn’t mean that you have to have an ironclad departure date from your business. You can continue to be as active in your business for as long as you wish to be active. In a nutshell, Exit Planning is largely about having flexibility. Why? So that no matter what your current departure intention is, you have prepared your business for the day when your attitude or life experience changes. One of the goals of an exit plan is to position your business to carry on without you. Can your business do this today? If not, we recommend that the shareholder(s) and management jointly develop a corporate contingency plan for the business.
Business owners are usually good planners, but the stark reality is that few business owners plan for the one thing that is certain: their eventual death, disability, or inability to work. When business owners think of exiting their business, they typically have more pleasant endings in mind. But we all know someone who couldn’t work, or someone who died unexpectedly. What we fail to seriously consider is that it could happen to us as easily as to someone else.
What would happen to—or within—your company if something were suddenly to happen to you? Could a sudden loss of your leadership possibly cause your business to fail? Could it have a significant effect on your company’s ability to maintain financing? What would happen to your company’s customer and vendor relationships? Could your company suddenly experience an internal power struggle, employee turnover, lack of direction, begin to lose money? Will successor management be able to take over at a moment’s notice or will an unprepared successor be thrust into the leadership position prematurely? These are questions that need to be considered in an exit plan because even vigorous and profitable companies quickly change when their leader is no longer present.
Consider this: value largely equals profit that is sustainable and transferrable. So ultimately much of the value of a business is based on its ability to continue operating profitably without its CEO. If you are irreplaceable, then your business will have a discounted value to a third party versus if you’re able to be around for 6–12 months to facilitate the transition of the company to its new ownership in a merger & acquisition transaction. Having independent management with the proven ability to take over if you’re not around makes a company more valuable.
An exit plan that includes a realistic corporate contingency plan should be developed so you can be certain that your business can continue if something happens to you. If you have an exit Plan that is updated periodically, not only will you be prepared to depart on your own timetable, but your business will also be prepared to survive whether you’re there or not. An exit plan can give you flexibility and peace of mind, no matter what happens to you in the future.
Jack Lyons is a Mergers & Acquisitions Advisor, a Certified Exit Planning Advisor (CEPA) and president of Lyons Solutions, LLC. He can be reached at 203-642-4141 or at firstname.lastname@example.org.
Copyright 2010 Jack Lyons. All Rights Reserved.