Spinnaker Trust
Drew Oestreicher, Spinnaker Trust
October 12, 2023
How to start thinking about the end game
By Drew Oestreicher
Stephen Covey, the author of "7 Habits of Highly Effective People," famously advised to begin with the end in mind. He reasoned that the first step to bringing anything to life is visualizing it. If you don’t, you empower circumstances and other people to shape your vision for you.
This advice definitely applies to small business ownership. Getting your succession plans in order — even if you’re a decade away from the exit — is the best way to ensure that you can create the post-career life you’re envisioning. What’s more, tackling the legwork that succession planning requires will position your business in a healthier place, no matter how far you are from the exit.
That said, the reality is that most business owners don’t think of the end until it’s too late. Half of all small business owners have no exit strategy, according to the Exit Planning Institute. Given that half of all exits are involuntary — due to factors like death, divorce, and illness — that’s a problem. By plotting out your exit strategy it’s not just the wellbeing of your business that you’re ensuring — it’s the next chapter of your life.
Here’s how to get started.
Start with the tangibles
One of the biggest obstacles that keeps people from dealing with exit planning is that the issue is emotionally fraught and brings up all sorts of existential questions. How will I define myself and spend my time when I give up the owner’s box?
Does my child want to take over the enterprise that I spent my career building? Rest assured you don’t have to tackle these questions right out of the gates. In fact, you may not be able to until you’re well into the succession planning process. Instead, start with concrete tasks, like assembling financial records, tax returns, as well as details on suppliers and customers, and making sure that your financial advisors, attorneys, and members of your leadership team know how to find them. Due diligence can often be the most stressful and time-consuming part of any succession process, and often it's the lack of proper documentation that holds the process up or even kills deals. The process of putting your hands on that paperwork will give you peace of mind, no matter what happens next.
Get a valuation
Whatever succession route you take, you’ll need to have a sense of what your business is worth. Often, business owners have an outdated sense of the value of a business enterprise, and what the market will pay. Dynamics like emerging technology, fiscal policy, and interest rates can have a huge impact on resale value. The best way to really understand the value of your business is to get an independent valuation by an accredited business appraiser. Look for designations like Accredited Senior Appraiser (ASA), Certified Business Appraiser (CBA), and Certified Valuation Analyst, which indicate that the individual has the training and experience to get the job done.
The process can take anywhere from three to six months. Once you have an up-to-date valuation, you can determine what types of investments you need to make in your operations to maximize your value, and what succession option might make sense, whether that means selling the business to a third party, handing the reins to a family member, or converting to an Employee Stock Ownership Plan, or ESOP.
Start visualizing your next chapter
As you get these pieces in place, start assembling the professional team you’ll need to help guide you through that transition and start plotting out your financial future. This team may include your attorney, accountant, and financial advisor. When you've worked your entire adult life, it can be scary to think about how you’ll get by without a regular paycheck.
Everyone is afraid that they’ll outlive their financial resources — no matter how much they have. Your advisor can help you think through different scenarios and give you the factual foundation you need to start considering bigger questions, like how you want to spend the next part of your life, and what role, if any, work could play. Knowing that your business is in order will make that decision-making process so much easier and make for a smooth transition into your next chapter.
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