It has been said that ‘timing is everything’. Well as far as business growth and exit planning goes, ‘timing’ may end up being one of the most important elements of your overall plan. This newsletter is intended to provide you with some guidance as to how you can begin to design a successful growth and exit plan no matter if your exit is near or many years into the future.
Gaining an Exit Perspective
Setting a plan for an exit requires a perspective on what you are trying to achieve and when it is possible to attain such an outcome. An important consideration for every business owner is that of ‘exit windows’, or, how to time your exit to meet your business and personal goals. In fact, there are three (3) components of ‘readiness’ for a well-developed growth and exit plan- they are:
- Personal Readiness
- Company Readiness
- Market Readiness
This newsletter focuses on market readiness, with heavy consideration given to the company and personal readiness to help you gain an ‘exit perspective’
Once you understand the timing of your exit, there is an opportunity for you to begin planning and making decisions today based upon achieving this future exit. Without this type of planning, you are likely to be without direction for your exit and possibly missing the next exit window.
Exit Windows – Market Readiness
According to this ‘ten-year transfer cycle’ chart, back at the beginning of 2020, we were at the outer edges of the Prime Selling Time. Then we were hit with a Pandemic. Sales of small businesses and acquisitions surpassed pre-pandemic levels, in 2021. Business sales in 2022 experienced strong gains in the first part of the year, but in the second half of the year, sales waned as the impact of inflation took its toll. However, business sales for companies that had the strength to survive these recent turbulent years are still in demand for purchase. – see below
Now, the past performance of markets is not necessarily a perfect predictor of the future (e.g., the impact of the Corona Virus). However, as the chart indicates, the last four (4) decades have followed a similar pattern of economic growth, expansion, and then retraction/recession.
Setting a proper growth and exit plan begins with the end in mind. And, if time permits, you can think about growing into your future exit. It helps to understand when you would like to exit and then build the business growth and exit plan around that timing.
Three (3) Concepts Relating to Timing of Growth and Exit Planning
In order to manage anything in life and in business, you need to be able to measure it.
Measuring your personal, company, and market readiness can set a solid foundation for your growth and exit plans and be a large determinant as to whether you will be able to grow into your eventual exit or if you should consider an exit earlier than perhaps originally planned.
1. Personal Readiness
Growth and exit planning for private businesses largely revolves around what an owner wants to personally accomplish. Some owners want to be worth $10 million (or $100 million). Other owners want to have personal freedoms to achieve balance in their lives – that is their priority. Others still, just live to perfect their craft and design income and businesses around that passion. No matter what your personal goals are, you are well served understanding what stage you are at in terms of personal readiness for an exit. That will be the largest determinant of whether you want to undertake the next level of growth in your business.
2. Company Readiness
Is your business set up today to be run by someone else? This is one measurement of company readiness. Many privately held business owners are personally involved in many, many aspects of their businesses. These companies are likely not ready for a transition because they cannot function without the owner. Other areas of company readiness include financials, systems, management, operations, and many other ‘value drivers’ that determine a business’s readiness for a transition. Growing into your eventual exit may include increasing your company’s readiness to prepare your business for another owner.
3. Market Readiness
Market readiness was discussed above, and in today’s market, though uncertain, the demand for companies with solid financials is still high. Market readiness is a large factor in ‘growing into your exit’ because you may determine that now is the time to exit and you are willing to pass over a growth plan to another owner to capture the opportunities now while they exist.
In conclusion, if you know that your exit window can extend beyond the next recession, then holding onto your business and growing into a future exit may make a lot of sense. However, if you don’t want to hold onto your business through the next recession, then thinking about an exit plan (that includes a growth plan) can make sense today.
You want to run your business with your exit in mind, focusing on company and personal readiness as well. In this way, you can increase the likelihood of meeting your exit goals, which have been measured as a part of your total exit and business transition planning.