The 5-Year Rolling Exit Plan

According to a recent survey by BEI Exit Planning Solutions, eighty-one percent of private business owners say they plan to exit their business within the next 10 years, but just 21% have an actual plan.  Furthermore, there is a sub-set of these business owners that have a rolling 5-year exit plan.  In other words, if you had asked them last year about when they plan to exit the business, their answer was “within the next five years”, just as it is today. Yet they still have not taken any decisive actions. Chances are that it will be the same answer next year, so it really is more of an “idea” that a “plan.”  The reality is that if a business owner wants to leave the business on their own terms, it takes a plan.  That means a series of actions and steps that must be taken in a certain order, and in a deliberate way, so that the outcome is optimized.

While a sale to an outside party is only one option of many, it is easy to get a false sense of confidence that your business will be easy to sell.  It is also easy to have a false sense of what your business is worth, and how much you keep after taxes, legal expenses and other fees.  Putting a plan in place to build its value takes more than focusing on growing the topline or your customer base.  It takes a concerted effort to increase the marketability of your business.  That means putting the right processes in place, with the right systems.  It means diversifying your revenue streams and carefully planning capital expenditures.  It means training top talent and putting the right incentive plans in place.  In other words, it is doing a lot of the things you should do anyway, but with a focus on the actions that will make it easier for someone else to take over the reins.  All too often, it is easier to keep doing things the way you always have but have worked just fine.
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An exit often seems far off and it is easy to put aside given the urgency of day-to-day operations.  The reality is if owners don’t set aside some time to plan for their eventual exit, and then begin acting on that plan, they risk falling in the “5-year rolling exit plan” trap and may be forced to stay a lot longer than intended, or exit without an optimal outcome.

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