By Ron Kustek
Having your exit strategy at the start of your business beats developing one when it may be too late.
You’re so excited and energized when starting your new business. Each day you feel tremendous pride and energy to manage and grow your business. So when and how do you carve out the much-needed mental and emotional time to decide when you’re going to either leave or sell your business?
There are many things that are out of our control which can happen at any time. We’ve seen it impact our friends and fellow business owners; losing their lease, or the owner gets sick, or a partner leaves the company, or the business starts a downward trend or the landlord increases the rent 50% … any of these potential situations could also happen to you — so how will you plan for any of these situations — or be able to hopefully avoid any of them altogether?
Starting your business is when you usually have the greatest clarity. Like any relationship, at the beginning you’re optimistic but also aware of both the good and bad things that can happen. We don’t approach these situations blindly … we keep our eyes open to all the possibilities and often play different scenarios in our brains. That’s the same thinking that will help you in planning your exit strategy.
Choosing when is the right time to sell, close or leave the business is often determined by your sense of success. Do you measure success in profits? Dollars and cents? Length of time running your business? Being able to start any business from nothing? Having people admire you for being a business owner? Answering any and all of these questions will help you gauge your tolerance or ‘tipping point’ for when you execute your exit plan.
Your exit plan will sometimes be based on whether you want the business to continue after you’ve departed. If you don’t care about the longevity of the business you created and built, then just selling to the highest bidder, or even closing the doors forever may be your best option. On the other hand, if you’ve been an involved business owner in our local economy and community where people depend on your business for their employment and livelihood, you may be considering different sales options for your company.
The most common way small business owners leave their business is by selling the business. You can sell your business to all your employees, thus forming a co-op, or you can sell your business to one key employee, or you can sell your business on the ‘open market’. These options may or may not involve carrying part of or the full loan for the new buyers, thus acting as the bank and financing your own sale. Though you will likely earn a respectable interest on the loan amount, this option has issues if you are more risk-averse and not wanting to act as a finance company.
Thinking about the potential for things not working out is antithetical to what the usual entrepreneurial business owner does. We’re usually all in on our idea and commitment to making it successful. However, the first year of your business is the perfect time to consider the future, after you’ve made enough profits, or built a lasting business which can be sold and/or taken over. Think about when you’ve succeeded in creating your ambitious dream and then choose to let it go for a different path of less stress, work, and perhaps enjoying family life more. NOW is the perfect time to decide when enough is enough – so that you plan today in order to execute your exit plan tomorrow!
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Ron Kustek is a business instructor at Cabrillo College.