Over the last few weeks, we’ve suggested that business owners and advisors do three things as they start shaping their Exit Plans:
One of the first questions business owners ask about exiting their businesses is, “Just how long is all of this supposed to take?” The true answer is it depends. Although that’s usually not a satisfactory answer, there are many things to consider when shaping an Exit Plan. One owner might have a business that’s worth $10 million but is overly reliant on the owner for success. Another owner might have a strong management team to take over but a business that only has one or two huge customers. Each of those owners will have different hurdles to overcome and thus different answers to “How long does this all take?”
Fortunately, there are some general guidelines for how long shaping an Exit Plan can take. However, Exit Planning timeline guidelines are entirely dependent on the owner. If the owner and the owner’s business are ready for an exit, advisors can quickly and efficiently shape and implement an Exit Plan for them. If either the owner or the business isn’t prepared to exit, planning cannot truly begin until both are ready.
Time It Takes to Shape the Exit Plan
Shaping the actual plan, which includes the three steps above, can take as little as a month or two. To quickly shape Exit Plans, owners must have all the appropriate data, know what they have and what they need, and know which Exit Path they want to take and why. Likewise, advisors need to gather the right professionals and have them dive into the details to help owners further shape their plans. Advisors who have all the necessary planning tools and an Advisor Team in place can shape an Exit Plan in a few months.
However, though owners have ideas about how to shape their plans, their ideas are usually loaded with questions they never considered. For instance, an owner may say that she wants to transfer her business to her children. This raises questions such as “What do I do if my kids don’t want it or can’t run it?” and “What if they can’t pay me for total ownership for 10 years or more?” If owners don’t uncover and address these questions with the help of their advisors, planning could take years (or never get done at all). Similarly, if advisors don’t have the right tools and networks, they can stall the process (or lose a client to someone who does have the right tools and networks).
Typically, any delays in shaping an Exit Plan result from an owner’s uncertainty. Whether that uncertainty is about how much money they want, whom they want to transfer to, or whether they can see themselves not running a business, the owner’s uncertainty often causes delays. It’s up to advisors to address those uncertainties and encourage owners to act.
Time It Takes to Fully Implement and Execute the Plan
Once the owner, the Exit Planning Advisor, and their Advisor Team shape the Exit Plan, it’s time to implement and execute it. If the owner is ready to act, implementation and execution can begin immediately. Here are a few things to consider.
It Takes Time to Build Necessary Business Value
Building necessary business value is usually the longest part of implementing an Exit Plan. Most business owners have a sizeable gap between the resources they have and the resources they need. To help owners bridge that gap, Exit Planning Advisors help owners shape and execute a plan to grow business value.
The owner and existing management may not have the know-how to grow the business further. The Exit Planning Advisor may likewise lack experience in driving business growth. But that advisor does have a process and capable advisors on their team to help the business grow at the pace necessary to achieve the owner’s Exit Goals. To build necessary value, owners need a growth plan, which is a crucial element of Exit Planning. The Exit Planning Advisor Team uses this plan in working with ownership and management to implement strong Value Drivers in the business.
Different Exit Paths Have Different Timelines
Recall that owners have two overarching options when they sell or transfer ownership. They can sell to a third party or transfer to an insider. If the business and owner are prepared for an exit, owners who pursue a third-party sale can sell their businesses and be completely out of them within a year or so.
Typically, transfers to insiders take longer, even for businesses and owners ready for exit. The additional time is due primarily to incoming ownership’s financing capabilities. But the time it takes sell a business to a third party or transfer to insiders is not primarily dependent on the nature of the Exit Path. It’s dependent on whether the owner is ready to exit and whether the business is prepared for the owner’s exit.
In Exit Planning, time binds all decisions. Owners must choose to act, and advisors must encourage them to act. As owners approach their 50s, 60s, and 70s, they must ask themselves, “Do I want to wait until I’m older, more tired, and possibly less passionate to do all these things?” Experience shows that the answer is “No.” Unless owners begin exploring their Exit Planning timeline, and unless advisors urge business owners to explore it, it’s unlikely they can exit, either timely or in style.
- The Exit Planning timeline is entirely dependent on owners and the Asset Gap. Advisors can encourage action, but only owners can choose to act.
- Though owners hold the power to act, advisors must explain why waiting hurts. Exiting in style is a journey, and advisors must be the guide.
- If owners wait to plan until they are ready to exit, they may find that their businesses are not ready for them to exit, extending the timeline further.