Much of the conversation around entrepreneurship focuses on the beginning phases of a company: the idea, the conceptualization, the launch, the startup and the business's growth. These early phases of business ownership are full of excitement, moments of inspiration, motivation and risk-taking.
When getting into business, focusing on growing a business and managing the day-to-day, many entrepreneurs never even consider what the end-game looks like – when the business will enter maturity and, when the time comes, how his or her role in the business will end.
Every successful business develops throughout a business life cycle. This life cycle begins with the development and start up of the company and undergoes stages of growth and expansion before arriving at maturity and the business owner's potential company exit. At maturity a business typically has:
At maturity, business owners must consider additional opportunities for expansion of the business in order to sustain steady growth and profits. At this point, business owners face a decision: whether or not they are up for the task of managing another growth cycle. If owners find they are not willing to meet the challenge and stress of expansion, then a transition must occur.
After successfully navigating many phases of growth and sustainability, a transition occurs once the business has entered maturity. That transition is known as a business owner's exit strategy. Following maturity, the company's future decline or renewal depends entirely on the way a business owner plans to exit the company.
As a business owner without a solid strategy for exit, you should expect the imminent decline and failure of the company into which you poured your heart, soul, sweat and time. You do not, however, have to endure or accept the demise of your business simply because you are ready to retire or can no longer work. With a solid exit strategy, you can preserve the success of your company, the enduring legacy of your initial inspiration and the fruit of your labor.
When exiting a business, an owner might decide to sell the company, relinquishing all ownership and control, while collecting a nice lump of retirement cash. If selling is your preferred exit strategy, be sure to start the exit plan at least five to seven years before your target retirement or sale date. During this time, establish job security for your existing employees, engage a knowledgeable CFO for tax strategies and use actionable financial data to increase your company's free cash flow to build the value of your business.
Only about 30% of family businesses survive the transition of ownership from the first to the second generation, and less than half of second-generation companies survive the ownership transition to the third generation. There are a long list of reasons why generational success is so difficult to achieve, but there are steps you can take – whether transitioning the business to the next generation or new, un-related management – to ensure the success of your successors
Perhaps you want more time to increase business value before selling or to educate your successor before handing over the reins. Maybe you love what you do and want to continue working so you can die happily at your desk. Regardless of your reasons, if you will continue working, then you need to have a plan for management transition in place once your business reaches maturity. (Better yet, you will have a strategy long before the company reaches maturity.)
Consider what you want your role to be while you continue working. You can choose to remain just as involved as you are currently, or you might like to take on a role that allows you more free time to enjoy your family, friends and hobbies.
With an established, strong back office that provides a solid financial foundation, your role can shift to one of overseeing the rest of the company while everything else functions on its own. You can continue to use your knowledge and experience to provide valuable management insights, collaborate with your future successors, and to enhance the decision-making process.
While continuing to work, be sure to establish a plan for your final, complete exit out of the company. This means preparing the business financially and considering what will happen to the company, its cash flow, employees, and its customers and clients.
With advice and guidance from an experienced management accountant or strategic CFO, you can establish a viable exit strategy and ongoing business plan for your company. Management accounting allows business owners to seamlessly transition roles in their companies, exit gracefully, and hand the reins over to new management with peace of mind. With historic, current, and forecasted actionable financial data at their fingertips, your successors will be able to make the data-driven decisions necessary to maintain, grow and expand your company and your business legacy well into the future.