One of the most overlooked questions in any small business is “When do I get out of it?” There’s no easy answer to this question, but it’s something every business owner needs to know and plan for succession.

Part of every business plan should be an estimate of the lifetime of the business. Are you in it for five to ten years with the idea of selling out for a profit at a predetermined time? Is it meant to be a family business you want to pass on to your children when they’re able to take it over?

An exit strategy or a succession management plan may also become necessary because you no longer enjoy owning the business. Circumstances change and for many entrepreneurial business owners once the excitement of getting the business ‘off the ground’ has faded there’s insufficient satisfaction to be gained from just running it.

Many key decisions of your business will be determined by the strategy you have for your exit from it. An example of this is financing. If you only plan to be in the business for a few years your financiers will want their money back quickly and your business structure will have to be able to ensure this. Your plan will answer their questions. A formal exit strategy not only helps you to decide on the right time and place. If done properly it builds the value of your company and provides security for your and your family.

Take time every day to think about your eventual exit. This time is well spent. It will produce real value and make earnings from anything else you would do with this time pale in comparison.  Real wealth comes from the exit of the business not from the regular earnings of the business. Most owners have 90 percent of their wealth tied up in their business. Doesn’t it make sense to plan for harvesting and preserving your wealth? We call it succession management, which is about creating value for your company and yourself.  

What should you think about? Look from the outside in.  Determine who should eventually own your company and why. Take a buyer’s view of what will make the business more attractive from a strategic standpoint.

·         Should you devote resources to developing proprietary and unique products or methods?

·         Is new equipment necessary now and what is the shape of your physical assets?  

·         Can you develop a brand? Branded companies are sold as a multiple of sales, rather than a multiple of earnings.

·         Document and protect your technology.

·         Can you corner a market or niche and become a price leader.

·         Are you recognized? Do you have a good public relations strategy?

Are your contracts and agreements written so they would provide value to a purchaser of your company?

Often, language in contracts can be problematic for buyers and investors.

Your family business succession plan will guide you to creating value in your business. Your goal is to create a commercial, profitable enterprise that works without you. This process takes many steps, but the smart business owner knows that the real value of any company is found when they exit the business. Therefore, having an exit plan that includes succession planning is crucial to the success of any organization.  These five items are key ingredients to any succession management plan.

1.       Review / upgrade software and technology

2.       Report all sales

3.       Consider a product display or showroom

4.       Systematize processes

5.       Prepare for the unexpected in selling the business