I believe that business owners should start by envisioning their end goal and then work backward to design their plan for “what’s next.”

It is crucial to address the void that comes when “heading to the office” is no longer part of daily life. This can be an intimidating step for many business owners. Identifying a new passion project or a significant life goal is the best place to begin.

For many business owners, the ultimate aim is to maintain a profitable business that doesn’t require constant personal involvement. However, what is often overlooked, yet essential, is planning for their eventual departure from the business. Here are four reasons why exit planning is an important component of any business strategy:

1. You Will Eventually Leave Your Business.

At some point, you will exit your business, which can happen in one of two ways: (1) by your own decision (voluntarily) or (2) due to unforeseen circumstances (involuntarily).

A voluntary exit may include selling your business at a fair value or transitioning to a reduced role, such as part-time or advisory, while still earning income. It could also mean retiring and letting the leadership team manage operations and generate revenue.

Conversely, an involuntary exit could be triggered by one of the 5 D’s: divorce, disagreements, disability, distress, or death. These situations can be difficult, and being prepared is key. Statistics reveal that after five years, over 90% of new businesses do not survive. A significant number of those closures are due to one of these five factors.

By incorporating exit planning into your strategy, you can mitigate risks linked to unexpected events and secure more favorable outcomes for your future.

1. Your Business Might Not Be as Valuable as You Think.

Many business owners have a large portion of their wealth invested in their business, and financial advisors often include this value in their overall net worth assessment. This can result in a misinterpretation of the actual business value and its impact on total net worth.

The truth is that the value of your business and what a potential buyer may be willing to pay can be different. Not all businesses are easily sold, and many fail to sell at all. Those that do sell may not reach the owner’s expectations for price.

Building value is therefore crucial. Enhancing the aspects that strengthen your organization—such as consistent profitability, a capable leadership team, a diversified customer base, well-trained employees, a strong culture, and collective team knowledge—helps secure growth.

Even if you enjoy running your business and aren’t planning to retire, focusing on these exit planning aspects will increase its value. In essence, good exit planning aligns with smart business strategy.

1. A Business You Can Sell Is a Business Worth Keeping

If you ever choose to sell your business, potential buyers will look for certain key attributes:

1. • Strong profitability and consistent earnings.
   • A business that is not overly dependent on the owner for daily operations.
   • A well-developed team and effective systems in place.

Most business buyers are looking for an investment that provides predictable returns. For your business to transfer value to a new owner, it needs to demonstrate its ability to deliver ROI without the owner’s active participation.

This means the leadership team should be capable of handling operations efficiently and maintaining a profitable business for the next owner.

1. Exit Planning Prepares You for “What’s Next.”

The process of exit planning involves a comprehensive evaluation of your business, the development of financial plans for both personal and business purposes, and preparing the owner for their next chapter.

Having a business that meets these criteria not only attracts potential buyers but also allows you to continue earning income without being involved in day-to-day operations.

Conclusion

Integrating exit planning into your strategy is a wise choice for any business owner. It helps you be ready for what the future holds, prevents overestimating your business’s value, and ultimately makes your business more attractive and profitable. Begin your path to building a valuable, sellable business by scheduling a Strategy Session today.