Succession and exit planning are critical yet often overlooked aspects of entrepreneurship. Did you know that around 70% of business owners lack a formal exit plan? Whether you're thinking about stepping back to enjoy your accomplishments or passing the torch to new leadership, having a well-thought-out strategy can make all the difference. Not even thinking about exiting your business yet? Good. Then it is the perfect time to consider the following questions to ensure you’re prepared when the time comes.
Why now?
Planning ahead minimises regrets, with 76% of business owners who sold their businesses regretting it within a year without a plan. We usually tell our clients to have at least a 5-year and a 10-year plan to exit their businesses. This allows them to be ready when opportunities arise, even if they don’t plan to exit yet.
Why consider an exit strategy?
Deciding to exit a business can stem from various motivations—personal reasons, new ventures, or retirement. Reflect on why you want to sell. Exiting when your business is thriving maximises its value. According to the 2022 Business Owner Survey Report, businesses that exit at their peak achieve significantly higher valuations compared to those in decline.
What is the business worth?
Getting the right value for your business is crucial. Overestimating or underestimating its worth can derail your plans. Engage financial advisors and professional valuators early. For example, a client aimed to sell their business for R40 million but discovered it was worth only R15 million. Through a strategic exit plan over six years, they increased the value to R50 million, proving the importance of realistic planning. Businesses with clear succession plans typically sell for 20-30% more.
When is the right time to exit?
Timing is key. Selling when your business is thriving fetches a better price. Monitor market conditions, the economic climate, and industry trends. At the CFO Centre, we recommend a minimum of five years to plan your exit strategy thoroughly. This ensures a smooth transition and optimal outcomes.
What happens when I exit?
Succession planning and your role as owner and CEO to identify your successors are critical. Identifying and training a successor early on is key to avoiding disruptions during your final handover. Only 27% of private company boards have adequate succession plans, highlighting a significant gap.
If family members are involved, plan for their future roles. Decide if they will continue or exit with you. Consult shareholders to align your strategy with their expectations. Clear roles and succession plans increase survival rates into the second generation. According to the PwC Family Business Survey 2023, businesses with structured governance and family protocols in place tend to navigate family dynamics more effectively, enhancing their longevity.
Who should help me during this process?
Businesses with comprehensive advisory teams achieve up to 40% higher transaction values. That is why a good CFO and a team of advisors are essential. They provide diverse perspectives and expertise to navigate the complexities of the exit process, allowing you to be better prepared.
And then? What about me when I’m gone?
Your departure will be tough on the business, especially if you don’t plan it properly - but don’t forget about yourself in the process. Plan for what you will do next to avoid the void many entrepreneurs feel after selling their businesses or retiring. Maintain a growth mindset and find purpose in life outside of your business by visualising what your days will look like when you don’t have to worry about the business.
You didn’t work your whole life to let this business live and die with you but rather to build a sustainable venture where you can leave a legacy. Succession and exit planning require time, foresight, and a team of trusted advisors. Start early, plan meticulously, and surround yourself with experts. With a strategic approach, you can ensure a successful transition that benefits you, your business, and its future stakeholders.
Article by Rowan De Klerk - The CFO Centre South Africa
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