Your Exit Strategy: Do You Have One?
by John McAlister
Ask yourself this question: Could you leave your business next week for a three month holiday with limited access to your cell phone or the internet? How would your business look when you came back? An exit strategy does not mean the end of your in- volvement with your business-it is the beginning of your freedom to choose how you will be involved.
I asked this of a prospective client with an extremely successful busi- ness. He thought for a few minutes and said, "I don't have a business. I have a high paying job (or the busi- ness has me!)." He hired me on the spot to help him develop strategies so that he can take more time for him- self and his family.
A client of mine I'll refer to as "Ted" started his business 50 years ago. He's over 80 now. When he was 45 he was overweight, had high blood pressure, he couldn't sleep and his marriage was in trouble. His doc- tor told him he had to slow down or he would soon die. Ted had an older friend in his 70s who was in great shape- looked 60. His business was growing rapidly. He was always on vacation with his wife and seemed not to have a care in the world. Ted asked his friend for advice.
"Look, you need drastic treatment. You look like you've been dug up. Start- ing next week, take a month off. Go to Europe or South America. Find a beach or a golf course. Just relax and have a good time."
"What will happen to my business?" "Pretend you're dead. Keep this up and you will be anyway. You've got a week to tell your team what to do. Then leave and let them run it. Believe me, they'll do a great job. If they don't, you'd better find out about it now."
Ted followed the advice. He wondered if there would be a building or a business when he got back. As you have guessed, everything was fine. His management team had figured out how to trim some expenses. There were new clients. Ted had a fresh outlook to expand the busi- ness. He had lost weight and his marriage was in better shape. That was al- most 40 years ago. Ted makes a point to leave the company for four to six weeks at least twice a year. He makes his children in the business do the same thing.
"So," you say, "this sounds really great, but I have no idea where to start." Have a frank discussion with yourself, then your spouse, and finally your family as to what your goals for your company are and how you plan for them to be in- volved. Do you have children involved in the business now? Do they want to be involved or do they have other career goals? Will there be a place for them in the future? Do you require that your children complete a "successful" apprenticeship at another company for a period of time before you will consider hiring them? Or will there be a job for them be- cause of their birthright?
Chick-Fil-A founder Truett Cathy re- quires all his children and now grand- children to complete an apprenticeship program outside his franchise business before he hires them. Many business owners have shared horror stories about hiring family members with no job skills other than what they have learned from growing up in the family business. One business (not in the sawmill industry) we know has a son working in the company along with three of his ex-wives!
Do you currently issue stock in your family business as a means to equalize among your heirs or as an estate plan- ning technique? Usually this has been disastrous. In fact, it is almost a sure- fire guarantee that your company will fail to survive the next generation of ownership. One of our clients jokes that the only time their family can find their way to the sawmill is to pick up a check.
An exit strategy is a positive thing for yourself, your family and for your busi- ness. Make no mistake. It is not an easy thing to do. Every industry and every busi- ness is different. You do need professional help. Most lawyers and accountants do not have the training or experience to craft successful exit strategies. The goal should not be to just to save the business for the next generation in the face of estate taxes and change of management. The goal should also give the business owner some- thing that he cannot buy-time and peace of mind to enjoy his success.
A wealthy client of mine told me something 15 years ago I have never for- gotten: "A man is not necessarily paid for the work he does, instead he's paid for the risks he takes."
I can hear you saying: "This isn't me. I'm young. I'm having fun doing this. I'm never going to retire. Why would I want to take a month away from my business?"
But remember the most important thing: One day you will not be coming back. Will your business die along with you? Is this the legacy you want to leave all the people including your customers who believed in your vision?
I'm in the same boat. I've owned my own financial consulting business for over 20 years. I'm having fun. I don't want to retire. I enjoy working with people. And yes, I do have an exit strate- gy. It's the most responsible thing I can do for my clients. I do take time off to enjoy my family.
I hope that this article will make you think about your situation. I hope you start a dialogue with your family about developing an exit strategy. Think about it. Could you leave your business next week for a month? Three months? How much risk are you taking by not planning for your exit from the business?
For an exit strategy to work successfully you will need at least five to seven years to make it work and 10+ years is ideal. Southmark Consulting has been helping its business owner clients deal with Exit Strategy planning for more than 20 years, and we now have some clients who have passed the business down to the next generation successfully. Has it been easy? No! But I can tell you from experience the families who do not plan are the ones who have the most to fear-and the most to lose!
About the Author
John R. McAlister
After working with CIGNA Financial Advisors, John co-founded an advisory firm in 2000, focussing on complex family transitions. He sold his practice in 2012 to become part of TBG. He is a graduate of the University of Georgia.