Whether you’re planning to sell your business to the highest bidder or pass it along to a successor when it comes time for you to make an exit, there are six key questions to ask yourself when exit or succession planning, writes Brad Turville, director and business advisor at BJT Financial.
The effects of COVID and continuing difficult business conditions have hurt many businesses. Owners are now more reliant than ever on the sale of their business for their next stage in life, which may be retirement or another business venture.
I often hear the term, “My business is my super”. But the reality is that many small business owners cannot afford to sell their business to fund their retirement.
Begin with the end in mind
The first step of succession planning or exit planning is to do just that – plan.
Let me explain the difference between succession and exit plans:
Succession planning is where you plan to transition the business assets to a family member(s) or an existing team member(s). Someone who succeeds you.
Exit planning is when you plan to sell the business as either:
- Financial trade sale – you put it out to the market and people put in offers. You would usually use a business broker to help.
- Strategic sale – this one I love! You strategically set up the business to sell to a specific business, group or person; e.g. a competitor or a business wanting an asset you have.
Like any plan, things change as time goes on, and so will your succession/exit plan. It may start off as a financial sale plan and down the line turn into a succession plan to a team member. The key is to establish a plan and review at least every year.
6 questions to answer when succession planning / exit planning
There is no exact formula to creating a plan, as every business and its owners are unique. But here are a few leading questions I like to use to get started:
1. Do you already have a documented and updated One Page Strategic Plan (OPSP)? A OPSP is a no-brainer for all businesses to document where you are going, how you will get there, what you believe in, important metrics to track, brand promises – all planned over 3-5 years > 1 year > 90 day timeframes.
2. When do you want to step out? Is it two years, five years or eight years? Setting up the teams and processes takes far longer than you’ll expect and the actual sale itself can take years.
3. How would you like to sell the business? Will the baton be passed down to a team member, to a family member? Will the business be sold as a financial or strategic sale? How do you see this playing out and over what timeframe?
4. Do you want to sell the business or all the business assets? If not, what does it look like?
5. Is the business 100 per cent reliant on you? It will most likely take more than one person to replace your role.
6. What is your business worth now and what do you believe you could sell it for at your future date? This shows the gap between the two destinations and we can help devise a strategy to get you there.
If you fail to plan, then you plan to fail.
Don’t leave this to the last minute – I have never seen that work as a successful strategy. Start now and set yourself up for success.
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