According to a recent PricewaterhouseCoopers study, 25% of family-owned businesses will change ownership in the next five years. Yet, 85% of family-owned companies do not have an exit strategy.
A finely honed business plan should include a detailed exit strategy that clearly outlines the owner's plan to get paid for their sweat equity at a designated point in time.
Operating without an exit strategy denies business owners the benefit of easing undue stress should the founder become incapacitated, and potentially helps to avoid losses that tend to accrue when the sale of a business is delayed.
If you are a fleet owner, it's time to start the planning process.
Keep in mind these six critical factors can affect your exit strategy:
1. Select your ideal exit date. How many more years do you plan to work? Even if you find it difficult to predict this key future milestone, select a potential date anyway, and you can refine it as your company evolves. Revisit your exit strategy periodically (at least annually) and adjust accordingly.
2. Complete your management team. If you are selling, ensure your management team is complete, including a CFO. If you want to transition ownership to a family member or key employee, begin mentoring them well in advance.
3. Allow adequate time to sell your business. It takes nine months to a year or longer to sell a business. The closer you get to retirement, the more important a definitive date becomes. If you aren't prepared to initiate the exit strategy process in a timely fashion, you could miss out on once-in-a-lifetime opportunities.
4. Identify the exit strategy you prefer. The more elaborate the exit strategy, the longer it will take to finalize the deal. It could take several months or several years. An investment banker experienced in M&A can explain your options and time needed to get different types of deals done. You don’t have to sell out totally.
5. Know your industry's business cycle. While the economy plays a significant role in the viability of a business sale, your particular industry's business cycle is also critical. Your business will be worth more to buyers when your industry is trending up, not down. Get ahead of the curve. Exit when your business is still growing.
6. Understand the market's appetite for M&A. Supply and demand plays a critical role. When there are fewer companies available for sale and plenty of buyers in the market (as there are today), sellers are in the driver's seat. Business owners who plan to sell a company in the next few years should take advantage of the low-supply/high-demand environment available in today's market.
Whether you've been in business for 5 years or 50, an exit strategy should be included as a key part of your overall business plan. Do you have an exit strategy in place? If not, why not?