YOUR BUSINESS AUTHORITY

Springfield, MO

Log in Subscribe

Opinion: Developing an exit strategy for idea-based businesses

Posted online

Business owners, especially if they are also founders, are protective of their companies. As they should be. With just over 50% of small businesses making it past the five-year mark, it’s a major accomplishment to birth, grow and profit from a business one has started.

Many owners, especially founders of their businesses, have a lot of pride and self-esteem tied to the work they do – and rightly so. For that reason, it’s hard for them to walk away. When asked about retirement plans and exit strategies, they like to say, “Oh, I’m not retiring. I’m going to work forever!”

The sentiment is completely understandable. As a business owner, your life is tied up in your business; it’s like another child.

But it’s important to be honest with yourself and admit early on that you probably will want to retire.

The biggest mistake I see business owners make is failing to have a plan, because it often results in the company being sold for much less than it is worth. In an industry like architecture and engineering, a large part of your business’ value depends on intangible things, like the ideas you create and how innovative your work is.

You don’t want to get to the point where you are rushed, eager to relax and vacation, and realize you have missed an opportunity not thinking about your exit strategy.

A common misconception about an exit strategy is that it’s there to set a hard and fast deadline to force you out of your business. That just isn’t true. Rather, exit strategies give you a framework you can use to decide when it is best to leave.

When your business model revolves around selling innovative ideas and creative designs fueled by a positive reputation, the biggest mistake you can make is failing to have an exit strategy in place for when you choose to stop working. Here are some tips for creating an exit strategy.

Build a framework
First, starting early is important. It takes a while to make decisions about the transfer of ownership, and those decisions can be hard to make. I recommend that you start asking exit strategy questions at least five years before you expect to start thinking about retirement. The earlier the better.

Dig into your wants
If you do not yet have an exit strategy but want to start thinking about working with someone to create that plan, here is a question to begin with: Do you want to sell your company to a minority owner and slowly phase out of your part in the company, or do you want to take your business to market and sell it to a larger firm?

These options are both followed up by more questions regarding the tax and management implications if you decide to phase out of your business slowly.

Design the turnover
If you choose to sell your company to a minority partner, it is important to have enough time to train the individual to be a strategic leader rather than a project manager. Additionally, these minority owners need time to gather the financial resources needed to buy the remaining part of the business when you leave.

If you choose to sell your firm, you need to do so in a way that does not majorly disrupt the viability of the business. You want to make sure your company continues to provide the same quality work and creative ideas as it always has so that it can retain its clients and incoming revenue. For that reason, it is vitally important to have a realistic sense of your company’s value. Your legacy is value. So, how are you going to help your successor make sure the business continues to thrive after you leave? The answer may be in how you handle the transition, which can be laid out in an exit strategy.

Again, planning ahead is crucial. It takes time to have the big conversations with the right people and make sure that every company stakeholder in the long-term health of the company is on board.

Summer Massey is the senior vice president of commercial banking at Arvest Bank in Springfield. She can be reached at smassey@arvest.com.

Comments

No comments on this story |
Please log in to add your comment
Editors' Pick
Open for Business: Bark Yard

The Bark Yard dog park and bar concept launched; Charity Fent Cake Design LLC moved; and a pair of business owners collaborated on opening The Hidden Hut LLC.

Most Read
SBJ.net Poll
Are you planning to travel this summer?

This poll is not a scientific sampling. It offers a snapshot of what readers are thinking.

View results