If you’re in the throes of building a company, you are likely not even thinking about what comes next. But now is also the time to start planning the long-term strategy for your exit. To one day pull off a successful—and profitable—business exit, there are four important steps.
1. Start planning early
Do you remember this quote from Mad Men? “The day you sign a client is the day you start losing them.”
It’s not all that much different when you start a business. You know that your ownership or day-to-day management will come to an end someday; the question is whether or not you will be prepared for that day.
And there’s another truth that drives home the importance of this principle: You don’t get any mulligans with retirement. You will only get one chance at leaving your business, so you don’t want to be caught unaware when the time comes. Starting to plan five or even 10 years ahead of the date when you’d like to completely step away is about right.
Allowing yourself more planning time gives you some flexibility in choosing the right time to sell. For example, small business optimism is peaking right now, so it’s probably a good time to put a business on the market. Contrast this to December 2007, the start of what we now call “The Great Recession.” If you start planning very early, you can cash out when times are good and probably avoid having to sell during a recession.
Also, you should have some general idea of the route you’d like to take with your business from its inception. Are you building to sell? Or planning to pass it on to a family member? Or go public? However, in each one of these cases, there’s another factor to consider. I alluded to it earlier when I said that you don’t want to be caught unaware.
2. Cover your worst-case scenario
It’s simply a fact of life that illness, death, flood, or fire can strike unexpectedly. What happens to your exit strategy in those cases? I wonder right now how many business owners in Paradise California, which recently burned to the ground, were covered by adequate insurance. I suspect nature has imposed a harsh exit strategy on many of them.
But hazard insurance is only one type of insurance business owners need; they need one or more life insurance policies, as well. For example, if your business has outstanding debt, what would happen if you or a “key man” were to suddenly die? Would your family have the ability to run your operation and stay current with debt payments?
Wouldn’t it be far better to have a life insurance policy in place that would cover the debt, or at least provide enough money to give the surviving parties breathing room?
And, there is an important truism with life insurance. As Ty Stewart with SimpleLifeInsure.com advises, “Age is a big factor in premium pricing. A 45-year-old business owner will pay close to 50% more than a 40-year-old owner. It pays to get your life insurance policy set up at a younger age.”