Are you planning for your exit?
Many business owners we meet with initially say no. Even the prospect of an exit feels too far into the future to warrant any significant investment of time or resources, they say, and we understand. The challenges and opportunities of today always seem more pressing than preparing for what is to come.
That said, we encourage business owners to think of it this way: Exit planning is assurance. It cannot guarantee future outcomes, but it can ensure you have implemented strategies to reduce risks and strengthen the business you’ve worked so hard to build.
Here are a few ways exit planning can set your venture up for stability, risk mitigation, and future success.
Your business is likely the most important piece of your financial security puzzle. Ideally, you should build its value to such a point that you can leave it with enough money to never have to work again (unless you choose to).
To position yourself and your business for this eventuality, you’ll need to know:
Fortunately, you don’t have to come up with all the answers all on your own. Instead, you can build an advisor team that can gather this information for you, especially if this team is led by a chief financial officer. A CFO knows the numbers of your business inside and out, with an in-depth understanding of both its past and its potential, uniquely positioning them to advise on matters related to exit planning strategy. (Bonus: Many of our CFOs are also certified exit planning advisors, or CEPAs, adding even more value to your organization.)
A CFO can help you leverage the above information to create a roadmap that allows you to strengthen your financial position and build business value, which will serve your business both now and in the future.
Once you determine what you have, what you need, and how long it will take to close the asset gap, you can implement strategies that add value to your business and keep you on track for a successful exit when the time comes.
It’s important to note that the need to add value to your business to close your asset gap is not a sign of weakness. In most cases, it is a sign that your business relies so heavily on you that, if you were to leave it (by choice or otherwise), its value would decrease.
To address this challenge, your CFO may recommend some of the following value drivers :
A good CFO can advise on all of the above, thanks to their deep knowledge about how your business works, the prevailing market trends, and what opportunities are available for growth. Your CFO can also define key performance indicators so you can measure progress toward your goals and understand how close or how far you still need to go. All of this allows you to do what you do best: run your business.
In business, no path is a straight line, and exit planning is no different. For example, you may have created a plan to transfer your business to one of your children, only to find that the child no longer wants to run it.
When you begin the exit planning process far in advance of your actual exit, you can more nimbly pivot to an alternative plan because of the value drivers you’ve implemented. You can move forward in ways that allow you to achieve financial security and other goals without having to scrap your plan and start over, potentially saving you time and money.
This is another area in which a CFO can be a vital asset. In defining the strategic roadmap for an organization, the CFO can strategize alternate endings. He or she can also set target KPIs that allow you to know if you are moving toward your goal, regardless of the path you take to get there. Although you may feel as though you have veered off your intended path, the numbers will show you where you actually stand.
A key element of exit planning is the creation of a business continuity plan. This plan provides instructions to family members, key employees, advisors, and others about what to do with the business, your personal finances, and more if you were to suddenly die or become permanently incapacitated.
Sudden death or incapacitation can leave your business (and everyone who relies on it) in an exceedingly challenging position. With a business continuity plan, you can devise strategies to make your unplanned transition out of the business easier to navigate. These strategies may include:
This risk mitigation strategy can help you provide your family, your employees, and yourself with more assurance overall. And creating this plan while things are relatively calm — rather than in the midst of a crisis — can not only avoid undue stress but can ensure your business is positioned for success no matter what.
At FocusCFO, our fractional CFOs provide you with the financial expertise and executive support you need to achieve your goals for your business, whether you’re planning an exit now or in the future. If you want to learn more about how we can support your organization, schedule a consult today!