The real goal of exit planning isn’t simply building something unique. It’s building something valuable, attractive and transferable.
Have you kept up with what’s going on with the good old trading card business these days? If you’ve spent any time around baseball lately, you’ve probably noticed that the baseball card hobby has exploded again. But these are not your grandfather’s baseball cards from the attic.
One of the biggest prizes collectors are chasing is the elusive “1 of 1.” Of all the packs and cards printed, there is only one of certain cards.
Collectors buy boxes and rip open packs hoping to find that card nobody else in the world can own. Certain 1 of 1 cards can command extraordinary prices because the right combination of player, brand, condition, timing and scarcity creates something collectors desperately want.
But there’s an important distinction hidden in there: Being 1 of 1 doesn’t automatically make something valuable. Someone still has to want it.
I think there’s a pretty good lesson in that for business owners.
After spending 20, 30 or even 40 years building a company, it’s easy to believe its uniqueness is part of what makes it valuable. And it probably is to some degree.
Your people, customers, and culture are all different. Your processes, reputation, market position and history are all different.
You can study transactions involving companies that look like yours and compare industry multiples. You can talk to investment bankers, CPAs, attorneys, financial advisors, consultants and other business owners who have gone through transitions. All of that can be extremely helpful. But eventually you have to recognize something:
Your business is already 1 of 1, and so are you. Which means your exit will be, too.
The more important question is whether someone else will place a premium on what you have built. That is where exit planning becomes much more than figuring out what your business might sell for someday.
A prospective buyer, or the next generation of ownership, is going to look beneath the surface. They’ll want to know how dependent the company is on you or how concentrated the customer base is. Can the management team operate without you, with processes that are documented and repeatable? Is the revenue recurring and predictable and is the culture strong enough to survive a change in ownership? And maybe more important that all of them, can the company continue growing after you are gone?
In other words, is the business merely unique, or is it also attractive, profitable and transferable? Those are very different things.
The Exit Planning Institute teaches that much of a company’s value resides beyond the obvious financial statements, in its human, customer, structural and social capital.
I like that framework because it forces an owner to think differently about value. A talented management team that doesn’t need you creates value. Deep customer relationships that belong to the company rather than personally to you create value. Systems and processes that allow the business to operate consistently create value. A culture that attracts good people and survives the founder creates value.
And here’s the interesting part: none of those things only matter when you’re ready to sell. They make the company better right now. That is why I believe the best exit planning usually starts long before there is an exit in sight.
The objective isn’t to predict exactly when you will sell, who will buy the company or what multiple they will pay. The objective is to continually build a company that gives you choices.
You may eventually sell to a third party. You may transition it to management. You may transfer it to family. You may recapitalize it, bring in a partner or simply keep owning it while becoming less involved.
But sometimes circumstances change. Markets change. Families change. And business owners change. A valuable and transferable company gives you the ability to change with them.
That’s why getting good advice early matters.
Most successful business owners become successful because they have made thousands of decisions about their companies over many years. But when it comes to exiting the business, there is an uncomfortable reality:
You may only get to do this once. You don’t get 20 repetitions to become good at it.
That makes it even more important to surround yourself with people who have seen the movie before - people who can help you understand the financial, tax, legal, operational and personal consequences of the decisions you are making well before a transaction is on the table.
Not because an advisor should tell you exactly how or when to exit, but because good advice can help you create more options before you need them.
There is a certain thrill in watching someone rip open a pack of baseball cards and discover that tiny 1/1 stamped in the corner. They know immediately there isn’t another one like it.
As a business owner, you don’t need to open a pack to discover yours.
You already own it.
The work now is making sure that when the time eventually comes for someone else to own it, they recognize just how valuable that 1 of 1 really is.