Exit planning: Not just for the old guys
April 5, 2017
By Martha Sullivan, CPA, CVA/ABV, CM&AA, CEPA
Partner, Succession Planning Practice Leader
So often I hear business owners tell me they don’t need to think about succession/exit planning or selling their business. Retirement is a decade or two in the future. Their kids are young so there’s no way to know if they’re going to be in the business. They’re too young to sell, let alone think about it.
There is a bit of truth in those comments, but also a great deal of denial.
Rather than going down the rabbit hole of doom and gloom (a.k.a.: you’re going to die someday), I prefer to look to the next generation for energy and motivation. Let’s consider the new entrepreneurs coming into their own in this economy.
According to the Kauffman Foundation of Entrepreneurship, most college campuses offer classes in entrepreneurship. Forty-five percent of graduates from MBA programs start their businesses fresh out of school, and that number could be higher if student debt was not such a factor in a young graduate’s life. The recent 2016 BNP Paribas Global Entrepreneur Report reinforces this trend, noting more millennials “ages 20 to 35 are starting more companies, managing bigger staffs and targeting higher profits than their baby boomer predecessors.” Being more open to risk and possible business failure, they are also showing signs of being serial entrepreneurs by starting between six to seven companies.
Wow. How are they doing this? Having watched my own young adult children go through school, it strikes me that these bright and talented entrepreneurs listened when they were taught Steven Covey’s “Seven Habits of Highly Effective People.” In particular, they appear to be beginning with the end in mind. Habit Two is all about imagination and envisioning what perhaps your eye does not see today. It is based on the concept that all things are created twice – once in your mind and then again for real. For an entrepreneur, it means you should consider your exit as soon as you conceive your business concept.
This takes discipline and time which, when starting a business, are frankly often focused on other things. Nonetheless, young or old, an entrepreneur should be vigilant in continuously envisioning their personal exit from the business:
- What do I want to accomplish with this business?
- For my customers
- For my employees
- For my community
- For my family
- When might I want to exit?
- What will I do after the exit?
- What kind of return should it generate during its life and at exit?
- How should I best achieve this?
For the millennials, this self-awareness is both motivating and grounding at the same time. Having watched their boomer parents flip houses, it is not inconceivable the millennial entrepreneur will flip businesses (up to seven of them if the BNP report holds true). To do so successfully and not leave money on the table, however, demands the owner follow a disciplined and structured approach to enhance the value drivers and set the stage for building value.
In establishing a plan, you accomplish several things:
1. Clarify your expectations for yourself, your colleagues and your family
2. Establish goals which allow you to create informed strategies
3. Enjoy the ride – Accomplish important things along the way, bringing personal and financial rewards while owning the business
4. Build value allowing an exit with a return on your investment
5. Know when it’s time to move on, and what the next adventure may hold
The most successful entrepreneurs build this sort of plan and then review it at least annually, working with their advisors, fellow shareholders, stakeholders and family to assess progress toward the goals. They understand what is going well for the business and where opportunities for improvement rest. They learn what the business is currently worth beyond what their gut tells them. They stay tuned to the market and what their exit options are. They strive to do whatever it takes to ensure the business is ready to sell at any time should the golden opportunity arise.
Such knowledge gives the young, as well as the more seasoned entrepreneur, opportunities to control their future adventures. Early exit planning, no matter the owner’s age, creates options. The important part is to get started. There’s no better time than the present. Take a moment today to pause and begin with the end in mind. What do I want it to look like? Ok, now let’s go get it.