Broker Check

Avoid These 3 Pitfalls in Your Small-Business Exit Strategy

July 26, 2023

As a small-business owner, you’ve tirelessly managed projects, juggled various roles, and built a career to be proud of. But, have you thought about how to conclude your journey? 

An effective exit strategy doesn’t just happen—it's planned. It's the final chapter of your entrepreneurial story, and just like the rest, it requires attention, consideration, and strategic action. In this blog post, we'll discuss three common mistakes entrepreneurs make when planning their exit strategy and how to avoid them.

Mistake #1: Delaying Your Exit Strategy Planning

One of the most common mistakes small business owners make is starting to plan their exit strategy too late. To maximize your enterprise value and transition out of your business with peace of mind, it's essential to start preparing from day one.

How can you do this?

  • Invest in culture: Hire people who share your work ethics and values, and nurture them with ample training, pay, and benefits. Knowing you have a competent team that can manage in your absence makes your transition easier and makes your business attractive to potential buyers.
  • Optimize processes: Make sure your business operations are well-organized and easy for anyone new to understand. Remember, it should be easy for potential buyers to see the value in your business. You don't want your exit delayed by last-minute organization.
  • Build revenue: Develop a diversified revenue stream that goes beyond just covering your expenses. Buyers want assurance that the business isn't overly reliant on a single client or market.

The sooner you begin cultivating your company culture, optimizing your processes, and expanding your revenue, the smoother your exit will be.

Mistake #2: Not Identifying a Successor

Many small business owners wrongly believe that selling their company is the only way out. But there's another viable option: finding a trusted individual, like a business partner or family member, to take over the reins.

Having a successor lined up can ease your transition, especially if you're concerned about adjusting to retirement. Handing over your business to a family member, for instance, can be an excellent way to create a lasting legacy. It allows you to gradually decrease your workload, helping the business become more self-sufficient over time.

However, if this is your chosen path, remember to start preparing your successor well in advance. The training process is often more time-consuming than anticipated and can come with unforeseen challenges that need to be addressed.

Mistake #3: Making Yourself Irreplaceable

As a small business owner, you might find a sense of satisfaction in being indispensable. However, being irreplaceable makes it challenging to retire, and can even lead to your business struggling once you leave.

So, what can you do instead?

  • Be a mentor: Encourage your employees to handle issues independently. As much as you could solve problems more quickly and effectively, allowing them to navigate these challenges prepares them for your absence.
  • Document policies and procedures: Start creating reference documents, whether it's simple checklists or comprehensive SOPs, to guide your team in running the business.
  • Delegate: Gradually assign more tasks to your team to give them a chance to gain experience and navigate problems under your guidance.

Being replaceable doesn’t signify weakness; rather, it indicates you’ve built a strong, capable team. And that’s every small-business owner’s ultimate goal.

As you approach retirement and start planning your exit strategy, remember it’s normal to feel anxious. You’re certainly not the first to navigate these challenges, and with adequate preparation, you can smoothly transition into your next chapter. After all, a successful exit strategy is the final testament to your hard work and business acumen. Plan wisely and give yourself the serene retirement you deserve!

Our team of experienced professionals at IM Wealth Partners is here to help you navigate the complexities of succession planning and enjoy a financially secure future.  Contact us today.