Many former business owners will tell you that they started to contemplate selling their business only one year before, if at all. Experienced exit planners and strategists explain, however, that since this is a process, it should require 3-5 years of planning in order to do justice to the process and optimize the owner’s chances of receiving the full value of his company.
As anyone who has been involved in this process will testify, there is so much to do in planning for a sale before an owner should approach the marketplace.
Barring any unforeseen circumstances (such as an owner’s death), when is the appropriate time to begin planning to sell your business? Most owners argue that they are too involved in operating the business (even at the CEO level) to begin to think about exit planning, and in any event, they will know when the time is right. They maintain that some event will occur, either within their lives, the industry or the economy, that will send a signal to them. Unfortunately, this is not the most prudent way to approach realizing the full value of something that has taken almost a lifetime to build. All too often, the focus is on keeping it going profitably.
I think the mistake that most owners make is that they think they only need a business plan in the beginning, if at all. As their business grows, those decisions will somehow fall into place without an additional plan. Many owners do not visualize from the inception what the end result will be when the business is fully matured.
However, as Michael Gerber points out in his book, The E-Myth Revisited, when someone asked Tom Watson, founder of IBM, what made IBM as successful as it was, Watson shared:
“The first reason is that, at the very beginning, I had a very clear picture of what the company would look like what it was finally done. You might say that I had a model in my mind of what it would look like when the dream- my vision- was in place.”
I realize that Tom Watson wasn’t asked: “when do you start to plan for the sale of your business”. The basis for the question was very different. However, I honestly believe that when you start a business, you should have a very clear picture of what it will look like when it is finally done. If you hold this picture in your mind, and your focus for measuring each year is on the end goal, you will automatically be putting in place the steps necessary to sell the company at the optimal time.
It seems ludicrous to say this with a straight face, since most people can’t plan one week in advance, yet alone ask them to envision what their company will look like when it has achieved its maturity. However, building a company is much like taking a trip. Who starts a trip without an end place in mind? It doesn’t mean that along the way, you won’t run into detours, side trips or get completely off trail, but with the end destination in your mind’s eye, you will always keep moving forward and toward your ultimate goal.
All things must come to an end, so with that in mind, why not commence your planning from the outset with a similar mindset. Too many owners get caught up in operating a company, tie their identity to that company and lose sight of the reason that they started the company in the first place.