By Fergus Cleaver
Sooner or later, every small-business owner needs to look to the exit.
Exit strategies come in myriad forms. Though plenty of die-hard entrepreneurs work until they keel over at their desks, most look forward to stepping aside at some point. That might be through a succession plan that leaves the next generation in charge, a private sale to a competitor or investor group, an IPO, or another form of disentanglement.
Unfortunately, business owners all too often underestimate the sheer complexity of exit planning. An orderly exit involves lots of moving parts—and it needs to start way earlier than you might think.
Ask advice of any entrepreneur who’s successfully (and profitably) moved on from their business entirely, or exited day-to-day management responsibilities with confidence, and they’ll give you a straightforward, terrifying nugget: You need to start planning for your eventual exit as soon as you take the reins.
That doesn’t mean you need to devote hours of each workday to exit or succession planning. Early on, you don’t need to give it much conscious thought at all. But you do need to approach your management responsibilities from the perspective of maximizing the value of your investment. After all, that’s what your business is—an investment built with brains, brawn and sweat.
The more value you create, the more profitable your exit will be, and the more you’ll enjoy whatever comes next—whether that’s launching a new business or living a well-deserved life of leisure.
Let’s take a look at five easy ways to align your exit strategy with your personal retirement plan…before it’s too late.
1. Cultivate Interests & Hobbies Outside Your Business
Business owners sometimes struggle to find meaning outside their 9-to-5 (or, let’s face it, 5-to-9) activities. When you work tirelessly to build a successful enterprise, it’s only natural to bind up your personal identity with your company’s.
In the very long run, however, seeing yourself as merely an extension, outgrowth, or vessel of your company is deeply detrimental to your emotional health and well-being. No matter how successful you are as an entrepreneur, you’re so much more: a loving partner, a doting parent, an active competitor, a caring friend, a fun-loving free spirit.
Embrace those other aspects of your identity. Cultivate them. And find pursuits that you can keep up long after you step away from the business you’ve built. Your life will be richer, happier, and likely longer if you do.
2. Set Up Tax-Advantaged Retirement Accounts
Okay, back down to earth.
Just as many business owners have trouble seeing themselves as separate and apart from their enterprises, many wrongfully assume that their businesses are part and parcel with their retirement plans. Why sock away extra cash when you can reinvest it in your company, boost its value, and harvest a handsome payday when it comes time to sell?
This logic seems sound, but it’s not always the best course of action. Assuming that your business will sell for what you think it’s worth is a dangerous game. This is especially true for closely held enterprises in sleepy niches. Look at your tax-advantaged retirement account as a rainy day fund: While it would be better if you didn’t need it, the alternative—learning too late that your nest egg isn’t as big as you thought it would be—is worse.
3. Live Frugally & Set Aside Plenty of Cash for the Long Term
Following on point number two: No matter how profitable your company is at the moment, times can change. By living well within your means and setting aside funds on a regular basis, you’ll be better prepared for the unexpected. And if the unexpected fails to materialize? Then you’ll have plenty to live on after your exit.
4. Identify High Performers Within Your Organization
Unless your exit plans involve liquidating your business’s assets and shutting its doors for good, you need to make sure it’s in a position to thrive after you’re gone. That means identifying high performers within your organization, then grooming them for executive-level responsibility over time. It’s never too early to start thinking about this part of the transition, as some aspects of corporate management are best learned through experience.
5. Get a Mentor
Freaked out by the thought of preparing your business for your exit—or the act of stepping down itself? Talk to someone who’s been there before. If you belong to any industry associations or local business booster groups, you’ll surely find fellow members who’ve retired or exited. If not, retain a trusted exit planning consultant to help you through the process. As with identifying high performers and potential successors, it’s never too early to seek out professional or experience-based advice on this point.
Are you ready for what comes next?