I recently attended an exit planning conference in Boston. After the conclusion of the conference I made the ill-advised decision to leave Boston for Washington DC via Interstate 95. On Friday afternoon at 5:30, no less! Compounding the usual traffic snarl was a heavy dose of road repair, with intermittent lane closures. We were crawling along in the left lane somewhere in Connecticut when a crop of traffic cones sprouted up, forcing us to merge into the lane to our right. To my great dismay (and other emotions), my attempt to merge was thwarted by a doggedly unyielding truck driver. Since the truck:car ratio was decidedly in his favor, I waited until he inched past before being mercifully admitted into the lane by the car behind him.
As an eager fifteen-year-old I went through driver’s training before getting my first driver’s license. My driving instructor repeatedly admonished me and his other young charges to “always leave yourself an out” when driving. That is, always be aware of your position in traffic, and don’t get caught in a situation where you can’t make a maneuver to avoid a dangerous predicament. Look down the road, not just at the car immediately in front of you. Anticipate your next turn, and position yourself for it in advance. That wise advice seemed to resound in my head while I stewed indignantly about the abuse I had suffered at the hands of that truck driver.
As a business owner you are at the wheel of your company. My driving instructor’s caution bears repeating: “Always leave yourself an out.” Be aware of your company’s position. Know what’s happening around you–customers, competitors, legislation, the economy. Don’t allow yourself to be caught in a predicament with no way out. Constantly monitor your company’s environment and anticipate changes. Keep your eyes on the road ahead, not just on what’s right in front of you. Have an “out” planned before you need it.
”You got to be very careful if you don’t know where you’re going, because you might not get there.” -Yogi Berra
By establishing goals you can map out a course. Those should include goals for your business and ultimately goals for your exit from your business. Be clear about your goals and understand your options. You don’t know what will happen three months from now, let alone three years, but you’re on dangerous ground if you don’t have a plan with options. What are your growth targets over the next twelve months? The next three years? What do you expect your bottom line to look like? How much financing will you need to support your growth objectives? As you progress, the goals will need to be adjusted. They should reflect current thinking. Nevertheless, without them you’re driving in unfamiliar territory without a map or GPS.
At some point you will exit your business. There are six main options for exiting, excluding IPO and liquidation. Understand that an IPO is probably not on your company’s horizon. My completely unscientific study says the odds of you being struck by lightning, at 1 in 600,000, are greater. But if you expect to exit through an IPO, you’d better have a detailed route planned out well in advance.
The more likely options, those to consider and evaluate, fall into two categories: internal transfers and external transfers. Internal transfer options may include an ESOP, an MBO, or a transfer to children or charity. External transfer options include sale of the business to a financial investor, sale of the business to a strategic buyer, and a private equity recapitalization. Depending on your specific situation, one or more of these options might be viable. Take the time to learn about them. Ask some fundamental questions: Do I have a management team in place that can successfully operate the business without me, or even buy it from me? Have I built and documented business processes that can be consistently repeated? Do I have a reliable and timely financial reporting structure? Have I identified and mitigated legal and financial risks to the health of the business? Have I created enough value in my business to make it appealing to an outside buyer? The more of these questions you address, the more likely you will have a successful exit before you “run out of lane.”
Always leave yourself an out.