Exit Strategies and Succession Planning
As part of our initial coaching session, we ask business owners if they have an exit strategy. “But I’ve only just started the business, why would I need an exit strategy?” is a common response. So is “They’ll carry me out of here in a box.” Well, macabre as it may sound, that’s an exit strategy of sorts…
Every business needs an exit strategy, it should be part of the initial planning process. How you plan to leave the business will have a huge impact on how you design and build it. If you intend to take a struggling business, build it up and sell it for a profit in 2 – 5 years, you will probably do things a little differently than if your plan was to focus on creating a business that you can pass on to your children.
Here are a few possible scenarios:
‘Flipping the business’ – A term borrowed from the real estate world, you flip a business when you buy it for a low price, whip it into shape and sell for a profit.
‘The business is my superannuation policy’ – A similar scenario to ‘flipping’ except the owner holds the business for a number of years, drawing a salary, before selling and using the proceeds to fund their retirement.
‘Cash cow’ – describes the type of business that has little capital value and a low ‘goodwill’ component, the owner plans to extract as much cash flow from the business as possible with little prospect of a high resale value. A typical ‘cash cow’ business may operate from leased premises, offer professional services and be heavily reliant on the experience and expertise of the business owner.
‘World Class Business’ – This is the business we should all be aiming to build. It is founded on a strong business plan, has robust systems and procedures and functions without the need for the owner to be ‘on the tools’ day after day. This well managed business delivers strong cash flow and, because the system is not reliant on the expertise of the owner to function effectively, it is attractive to buyers.
When discussing exit strategies, it is important to consider succession planning. Succession planning occurs when the leadership of a business transfers from one person to another – commonly from one generation of a family to the next, but the term also applies when ownership of a business changes hands. We’ll look at succession planning in more detail in next week’s blog.
Give us a call, we’d love to discuss an appropriate exit strategy for your business.
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See you later.