Most business owners are so focused on running the day to day of their business that they really have a hard time taking a step back to focus in on what needs to be done to exit successfully.
Today’s video is geared towards those business owners who are maybe 5 to 10 years away from the exit of their business. I’m going to share with you:
- 3 things you should do 10 years away from your exit,
- 3 things you should do when you’re 5 years away from your exit,
- And 3 things that you should do today, have in place right now, regardless of whether you’re 1 year out or 20 years out from the exit of your business!
Click here to watch the full video or read the full video transcript, below.
When To Start Planning Your Business Exit
You get so focused on running the business but at some point, you will really want to take a step back because you know you want to exit at some point in the future. I want to share with you 3 things that you will want to think about, that you really want to get serious about doing when you’re 10 years and 5 years out from the exit of your business.
10 Years Out
1. Diversify Your Revenue Base
You may not know yet whether you’re going to sell to an outside third party or whether you’re going to transfer your business to an insider, but at this point, one of the most important things you can do is make sure that your revenue base is diversified. If you have a concentration where you’re getting revenue from one source, a handful of places, or only a handful of clients, the value of your business will plummet.
2. Value Your Business
The second important thing that you’ll want to do is value your business. Let’s say the value of the business is $2 million but you need it to be worth $4 million or $5 million for you to exit on your terms with the amount of money that you need. Because you know the value 10 years out, you have 10 years to grow the value of the business to get it to where you need it to be.
We subscribe to a valuation software tool that is very robust. There’s millions of businesses in there and we make it available to our clients for free because we know it’s the one thing that’s going to help you get unstuck and start making progress towards your exit.
If you go to: truenorthra.com/valuemybusiness, you will get the free link, the free checklist with all the information that you need to value your business and figure out what the heck it’s worth!
3. Develop & Implement Your Strategic Plan
The third important thing you will need to do is to develop and implement a strategic plan. And the reason why this is so valuable 10 years out is because it really focuses the business. Here are the things that we do well our competitive strengths and weaknesses and our initiatives. So, we’re not just setting 3 or 5 annual goals and then pie in the sky goals set for 30 years from now.
It really lays out a process for here’s who we are, here are our values. Here’s what we do best and here’s what we’re not so good at. Here are the key things that we’re going to work on over the next 1 to 3 years and here are the long-term goals.
5 Years Out
1. Revalue Your Business
I’m going to repeat one of the steps from what you want to do at 10 years out, which is revalue the business. We want to know what the business is worth, what your other assets are worth, other income sources, financial assets, 401ks, rental properties, etc. We need to figure out what the combination of your total net worth is, so that we know if there’s a gap.
If the sum of all your financial resources is only going to provide x dollars of income for you in retirement and you need $30,000 more a year, we have a gap and that’s okay. We have 5 years to close that gap.
2. Retain Key People
Take the necessary steps to hang on to your key people. We don’t want your head honcho management person leaving a year from your exit. There are things that you can do, and you can put in place like a non-qualified deferred compensation plan.
I did two other videos on those non-qualified deferred comp plans. If you have questions, if you’re like, what is that, why would I need that? Go back to those other videos. I’ll link to those below, so you can check those out if you’re not sure what a non-qualified deferred comp plan is, why it would be beneficial and why it’s essential to retaining your top people!
3. Replace Yourself
The next thing that is critical that you’ll want to do around 5 years away from your exit is to begin to replace yourself. Stepping away from the day to day operations, getting as much off your plate as you possibly can. And so you can do it slowly. You can, you can gradually let things go and then monitor how that’s going and how that person is doing.
If you have a business that revolves around you, your customers, your clients, your vendors, everything revolves around you, that is going to absolutely plummet the value of the business. And any third-party buyer that comes in, wants to see that you have groomed and trained the next generation management team to replace you. When the business is sold, they want to see that there is this continuity of relationships and nothing’s going to change once you back away from the business.
Now we want to talk about three things you can do and should do today, to make sure that you can exit your business successfully, how and when you want to. These are the more urgent things and if you don’t have these things in place, get on it right away!
1. Create Your Business Continuity Plan
The first thing is the business continuity plan. What a business continuity plan addresses in this context is what happens to the business if something happens to you, if you die, if you become disabled, if you get lost in a mysterious airplane crash or something, what happens to the business?
It is not difficult, nor is it expensive to put this into action. This is actually something that we can do for you if you’d like. Most business owners big and small do not have a business continuity plan and as a result, their employees, their business, their spouse are left with this rudderless ship should something ever happen to you.
2. Clean Up Your Books & Focus On Profitability
The other very important thing that you’ll want to do any time, regardless of how far away you are from your exit, is to make sure that you have clean books and that you are focused on profitability. Make sure that you have a very competent skilled bookkeeper to help you, that you’re working with a CPA and you’re not trying to do this stuff on your own or working with some inexperienced tax advisor who’s not a CPA. Every business owner, in my opinion, should be working with a qualified and experienced CPA without exception.
3. Review & Update Your Agreements
The last thing that you’ll want to do any time, regardless of how close you are to your exit, is review and update your agreements. Take the time to pay your attorney to review these documents. Make sure they match where your business is today and who is involved in the business and they’re protecting you. That’s the goal. We want these agreements to protect you and the business should something happen.