In a nutshell, small businesses are run by founders who are experts in their fields and therefore, set strategic directions for the business in an ad hoc manner. The problem with this setup is that they tend to incorporate less planning and more instincts into their various techniques. What results is that the business becomes small-term in growth and may or may not become sellable when you decide to exit.
The purpose of this write-up is not to discredit these founders but rather to emphasize the importance of planning with a sense of the looming future ahead. This makes business planning more comprehensive and purposeful in terms of growth and exit.
What is the Planning Process?
Generally, the planning process is when you set the direction of your business using up-to-date knowledge and information. But it is not just about future planning because it should also help the team members reach a consensus and remain focused to help you.
If done correctly, planning should be able to help you provide direction, alignment of resources, communication and a general and specific plan of action.
Planning the Transfer of Ownership
Your level of investment in the process of transferring of ownership needs to be discussed. This is because if the company cannot run without you, then you cannot expect the buyer to just take over. You will still be needed during the first months to help with the transition.
The second reason for your involvement in the transfer is directly associated with the value of the business once it’s sold. Generally, if the owner dependency of your business is very high, which means that it cannot operate without you, then its value will be low.
So when you’re planning to sell your business, you have to look past the 24-36 months. For example, incorporate in your exit planning the 3-6months of holding planning meetings to provide up-to-date direction to the management and prepare them to continue your business’ current momentum even after the change of ownership.
If, for example, you already have a custom planning session that happens annually, then make sure to schedule that in the fall or winter, just before the expiration of the current calendar year. Start the planning process with an overview of the desired revenue for the upcoming year. The target should be set upon mutual agreement with the rest of the team.
Planning Your Exit in 5 Years
Only a handful of business owners will have a 5-year exit planning. But when you have a 5-year plan the relationship between the owners and the management team changes substantially. This advance planning helps the owner in his decision-making for long-term goal attainment and overall growth.
As mentioned, the level of involvement an owner has to its business will affect the long-term value. As such, one of the most difficult aspects of exit planning is to plan the owner’s ultimate departure from the business operations. Most exits are emotionally driven but with correct planning and sufficient input of the management team, you should be able to reach the right decision.
Running and growing a business is time-consuming and trying to strike a balance between the current pressures and the future is very important if you want to achieve long-term success.