A key part of every CEO and business owner’s agenda is (or should be) planning for their eventual departure. Continuity in leadership helps ensure that the business doesn’t falter when the leader’s torch is passed.
But transitions won’t go smoothly if leaders (and their leadership teams) fall prey to some common exit planning mistakes.
The first—and possibly most important—mistake is paying insufficient attention to issues of exit planning and succession. A business leader’s day is filled with operational issues and other challenges that can distract from thinking about the future. But without this kind of forward thinking, some challenges may lie ahead.
“I encourage you to begin thinking about your exit strategy, even if your retirement is not for several years to come,” says TAB Facilitator Phil Spensieri. “Thinking ahead can make a big difference in the transition process.”
Other exit-planning mistakes to avoid:
A CEO or business owner’s departure affects people throughout the organization. Failing to keep these stakeholders updated on your exit plans (at the appropriate time) increases the odds that things won’t go smoothly in the future. And in any case, these stakeholders likely have valuable input to share regarding the way succession is planned.
You want to leave the business in good hands. To achieve this goal, it’s important to build up your management team.
Begin transferring some decision-making to appropriate managers or department heads. If you become involved in choosing a successor, make sure “the individual you pick is the best suited in terms of skills, experience, education, and temperament,” says Chad Lusco of the Forbes Business Council. “It’s often a good idea to turn to an advisory board or consultant for neutral guidance.”
Of course, being a TAB member guarantees you’ll benefit from the wisdom of others.
If your goal is selling the business outright, don’t make the mistake of either over- or under-valuing its worth. Any interested buyers can probably discern for themselves whether your valuation proves to be correct. if it isn’t, buyers may shy away, thus prolonging the selling process to an undesirable length of time.
While you may think you know the right (or best) price for selling the business, remember that “buyers often take into account numerous other factors [such as] how long the business has been profitable, the overall performance of the management team, the status of relationships with key customers,” and so on.
Look closely at current market trends, how these trends affect your company’s valuation. Prepare to be flexible in this area, so that you (perhaps with the aid of a non-biased valuator) can arrive at the precise value at the time you wish to sell.
Savvy CEOs and business owners understand the error in holding off on a decision to leave (or, more impractically, refusing to leave). To counter this potentially costly error, it’s best to conceive of a date for departure and determine what you wish to achieve by then.
With a planned departure in place, you can then focus on long-term strategies and be consistently “looking for ways to not only improve profitability, but also build more value in your business to make it as attractive as possible to potential buyers,” says Business.com.
Avoiding these exit-planning mistakes can save precious time, money, and resources better used to plan the next chapter in your life.
Want to know more about business valuation? Register for our free TAB Boss webinar, “Know Your Company’s Value and Prepare for Your Optimum Exit.”