Life insurance can be likened to business exit planning

It’s quite a strange analogy to make, so let me explain.

When we’re born, we’re thrown into this world of endless possibilities, full of opportunity and wonder.

The last thing that’s on our minds when we’re young is what will happen when we leave this world. What happens to the family and friends we leave behind? What will become of those that depend on us to survive?

All we are concerned about, at least whilst we’re young, is tackling the issues and events that present themselves in the short-term and, for the more conscientious young people amongst us, how we are going to attain the careers and lifestyles that we aspire to.

Now, liken this to setting up a new company.

You’ve just come up with a revolutionary accounting system that will completely eliminate the need for business owners or their accountants to complete accounts and returns manually. You’re not interested in where the company will be in 5-10 year’s time, you just want to get this new product patented and out to market as soon as possible before competitors develop their own systems.

But, like death, parting with your business is inevitable. It will happen eventually. And if you fail to prepare for this inevitability, you will suffer the consequences.

One dissimilarity in this analogy, however, is the persons that are affected by your actions.

If you fail to secure proper life insurance cover, and you pass away, your friends, family, and those that depend on you will suffer.

If you fail to plan your exit from your business properly, however, it’s you that will suffer. You will, most probably, receive a much lower price for your business and basically remove a huge chunk of value that you have spent all those years building up in the company.

So, the lesson is, try not to become too tied-up in the day-to-day operations of your company and don’t neglect long-term strategic planning. It might not appear to be too important during the early stages, but investing time in this activity during the start-up phase will pay dividends (literally!) when the time comes to sell your company.

And if you don’t have the time or patience to handle exit planning yourself? Outsource it to the professionals.

Arrange a no obligation chat with me, Bob Brown of Exit Success, to see what we can do for you and your business to ensure that you get the best deal possible when it’s time to exit.

Give me a call on 01709 810081 or email bb@easf.co.uk.

Fact: Most Exit Strategies Fail

Before I begin, let me say that ours don’t.

This conclusion is from data collected over industry-wide studies. They show that most family-owned businesses do not achieve the anticipated or desired results from their exit strategies.

No matter what their method of exit, be it succession, management buy-in, or management buy-out, they build a (seemingly) solid exit strategy only to discover that it does not reflect reality for one reason or another.

The reason for this?

Many exit strategies resemble more of a wish list than that of a realistic plan. People’s emotional attachment to their business means they feel it is worth more than it actually is.

Using external professionals and consultants can therefore help to inject a sense of objectivity into the valuation and planning process, ensuring that goals/objectives remain within the realms of reality.

Aside from the fact that business owners can often overvalue their companies, there is also an issue with flexibility in most exit plans. Too many exit plans are rigid and inflexible; they do not sufficiently allow for unexpected changes in the economic climate, the industry, or within the business itself.

You MUST be prepared to alter and re-work your exit plan as time goes by to ensure that it remains achievable. One of the major reasons for exit strategy failure is due to changes in the economic and business climate that have not been anticipated or accounted for in the objectives of the exit plan.

This is another good reason to bring an external professional or consultant on-board during the exit planning and implementation process. Professionals and consultants can help to tweak your exit plan according to market and industry conditions, or changes that occur within the business itself. Their objectivity, once again, also helps in that goals realistically reflect the conditions surrounding the business – not goals simply linked to what the business owner(s) would like to achieve.

See, the concept of failure is a product of predetermined goals and objectives. When you read the title of this article, it would have been reasonable for you to assume that by ‘fail’ we implied that exit strategies are the cause of this ‘failure’. When, in fact, it is simply the case that exit strategies ‘set the goalposts’ for success or failure during business exit.

So, in essence, business owners are failing themselves, by setting standards too high and expecting too much from their exit strategies.

That’s why it’s a good idea to bring in a professional or a consultant, to ensure that you – as a business owner – keep both feet firmly on the ground during the exit planning process, and also during the plan’s implementation stages.

So, to maintain objectivity during your exit planning, speak to us – the exit planning professionals – at EASF Ltd. Give me, Bob Brown, a call on 01709 810081 or email me at bb@easf.co.uk.