By Eric Reich
One of the more sensitive topics for business owners is exit planning. Last week, we discussed taking steps to allow you to begin to put your and your family’s needs before the needs of your business. We talked about developing future leaders and creating and documenting systems and processes to not only free up your time but also make your business more valuable!
Once you start to make your business less dependent on you and you become able to step back and view the business from a distance, you may begin to think about what comes next in your life. You’ve spent so much time focusing on the business, that you never really think about life without it.
When I mention the topic of exit planning to business owners, they, more often than not, react in an almost defensive manner, as if I’m suggesting that they should retire. Exit planning is not about retiring, but rather about maximizing the value of your business. All business owners should be doing exit planning even if they have no intention of leaving the business.
Why plan for your exit if you don’t want to leave? For starters, not everyone leaves their business voluntarily. A large number of owners who leave their businesses do so due to their own or a family member’s health problem, disability or death. I can assure you the last thing I was expecting at 51 years old and running a successful business was hearing the words, “You’ve had a heart attack.”
Luckily for me, I survived nearly unscathed. I will admit, however, that it was a huge wake-up call for me. I never want to stop working because I love what I do. But this made me realize that one day I might not have the choice. I started to develop my future leaders, systematized and documented all of our processes, and began to set the company up in a way that it could operationally run very well without my daily presence. The intent of doing that was to ensure that if anything ever happened to me, my clients and staff would be taken care of with minimal disruption. What I didn’t plan on was that designing my business in such a way made it far more valuable than the average firm in my industry.
Planning for an exit when you have no plans to exit is the perfect time. This allows you to spend a decade or more working to increase the factors that increase value, such as growth rate, management team, culture, processes, technology, and, of course, EBITDA. While EBITDA (earnings before interest, taxes, depreciation, and amortization) is important, the other items mentioned are what determine whether or not you get an average valuation or something closer to the top end of the spectrum for your business. A business that has all of those factors in its favor not only sells for more, but is obviously a better-run company and something all owners should strive for.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
