Don’t Think You Need an Exit Strategy?

According to a recent report from the U.S. Chamber of Commerce, 48% of business owners have no exit strategy, but nearly 80% plan to use the sale of their company to fund their retirement. The unfortunate reality is that most auto shop owners do not properly prepare for their future. However, there’s one undeniable fact: 100% of all business owners will eventually leave their business. So, the question is, “Why are so many shop owners unprepared for their inevitable exit from their company?”

Shop owners get consumed with the day-to-day operations, and all too often, live in the present. Many mistakenly believe that they have all the time in the world. The thought of an exit strategy seems so far in the future, why even think about it now? The hard truth is that life can throw us a curve ball at any age, and if it does, will your business survive? Will your family be financially protected and secure?

Preparing for your eventual exit should start on day one when you open your business. You may not know the exact year or day when you will exit, but you do need a plan. Not having a plan leaves too many things to chance. As a business owner, you have a responsibility to your company, to your employees, and to your family to create an exit plan.

In this blog, I will outline five key strategies that will not only help you create your exit strategy but will also help you to become more profitable and achieve greater success throughout your business career.

 

Choose Your Team of Professional Advisors

The first thing you need to do is assemble your team of professional advisors. This includes an attorney, a CPA, a financial advisor, a qualified insurance agent, and a business coach. Each advisor will handle a specific area of your business, and your exit strategy. Your attorney and financial advisor may work together in areas of creating your will, estate planning, financial planning, along with other key legal considerations. Your accountant will ensure that every financial aspect of your company is attended to, including tax liabilities, which will become even more important as you approach retirement age.

The reason for having a qualified insurance agent is to ensure that you are properly insured in the event something should happen to you or your company. For example, if you should die or become disabled, would your family be financially protected? Would your company be able to fulfill its financial obligations? If a natural disaster damages your property, building, and contents, do you have the proper insurance to cover the losses? Having the right insurance coverage protects you in the event of an unplanned crisis.

The reason for having a business coach is to tie everything together. Your coach understands the details and the importance of creating an exit strategy and will help you through the process. Additionally, your coach will hold you accountable to complete your exit strategy and update it as needed.

 

Hire Superstar Employees

I often tell my clients, “You will only be as successful as the people you assemble around you.” Too many shop owners rely on their abilities, talents, and knowledge to grow their businesses. In this scenario, a business will plateau and never reach its full potential. When you assemble a team of superstars and commit to their continued development, your business will achieve greater success. The collective minds of many are far better than one. 

Always look to hire the superstars. Motivate them through praise, recognition, and positive feedback on their performance. And most of all, create a culture of mutual and shared respect, which is the foundation of every great company.

 

Have Clean Financials, Be Consistently Profitable

All too often I hear prominent experts say that you should work on having a clean set of financials three to five years before you plan to sell your company. I don’t agree with this. Your financial reports need to be clean and accurate from the very first day you go into business. This is an area that your accountant and your business coach can greatly help you with. Your business needs to show consistent profit and growth over time.

You also need at least three months of cash reserves.  This means that if no revenue is generated for a given period, could you pay your monthly expenses for at least three months?  We all remember COVID. If it were not for the Payroll Protection Program and the SBA Loan Programs, many businesses would not have survived, simply because they did not have enough cash reserves.

Another reason for strong financials is that your business will be worth more to a prospective buyer. And, if an unplanned crisis occurs, forcing you to sell, having a clean set of financials puts you in a much better position to realize the maximum price for your company.

Lastly, on the topic of finance, you will need to sit down with your financial advisor and determine how much money you will need in your retirement. You must plan today to be financially secure for when you finally decide that your business days are behind you.

 

Build a Business That Can Run Without You

As a shop owner, you have a responsibility to build a business that can run without you. This does not mean that your goal should be to become an absentee owner. However, it does mean that you will achieve far greater success, enjoy your life more, and improve the lives of your employees when you are not tied down to the day-to-day operations.

To build a business that runs without you will require providing ongoing training for all employees, building systems, and processes, and creating and updating job descriptions. It also requires keeping up with technology and empowering people in your company to make key decisions and become part of your future growth plans.

Another component of your role as the shop owner is to identify leaders within your company. People who are aligned with your vision, mission, and purpose and who are resourceful and willing to help their coworkers succeed. When you find such people, do all you can to mentor and coach them, and allow them to spread their wings. Leaders understand that it takes other leaders to ensure the long-term success and growth of an organization.

 

Consider Your Exit Options: Succession or Sell?

Depending on where you are in your business career will determine how you will handle your exit from your company.  As I mentioned earlier, throughout your career as a shop owner, you need to identify leaders and put them in key management positions.  If you decide that you have identified a key employee or a family member to be your successor, then that person must be in the position of running your company for a considerable length of time. I am talking years, not months. To think someone can step into the role of owner without the experience of running your company is a recipe for failure.

A few things to consider when opting to create a succession plan. You may decide to remain the owner of the company, while the successor takes the reins. Or you may create a plan where ownership is transferred over time. Additionally, if you decide to sell your company to your successor, the sale amount needs to be determined ahead of time, contracts drawn up, along with other legal considerations. This is why you need your team of advisors to help you through this process.

If you decide to sell to an outside entity, you will need help from an attorney who specializes in business deals. You will also need a firm to determine the value and selling price of your company. If you own the property, you will need to decide whether to sell the property along with the business or retain the property and collect rent. The buyer will perform their due diligence, but it is best that you have all the details worked out by the time you begin the sales process. There’s one more important thing to consider, having been through the sale process of selling my company. I know firsthand that it can take time, even years, to find the right buyer. Again, this is why you need to start your exit plan early and update it as needed.

 

Conclusion

At Elite, we understand that preparing for your retirement, selling your business, and succession planning may seem a bit overwhelming.  That’s why, at Elite, we know that preparing for your future starts today. From our coaching programs, service advisor training, management training, and our peer group program Pro Service, we will help you achieve the business results you are looking for today, while building a company that will pay dividends tomorrow, and into your retirement.