Some Facts
If you’re a business owner, chances are the largest asset on your personal balance sheet is your business. Do you view it as a job that provides income, or as a long-term investment?
Did you know that, according to the Exit Planning Institute:
70-90% of most business owner’s wealth is tied up in their business.
Did you also know:
Only about 30% of businesses put on the market end up selling.
Whether you’re two years away from exiting your business or more than ten, the best time to start planning is now. At some point—whether by choice or not—you will eventually have to transition out of your business.
Comprehensive exit planning strategy decreases business risk, increases business value, and ensures you’re in an always-ready state.
When I went through my first ownership transition—buying out a partner—I hadn’t yet heard the phrase “exit planning.” And if someone had asked me at the time, like many owners, I probably would have said it had something to do with selling your business. While that’s true, selling your business is just the tip of the proverbial exit planning iceberg. The following story is a good example.
A Story: The Beginning
Once upon a time…
In 1989, I was part of a successful data processing and direct mail startup. In 2000, one of my three partners (another Dave) and I launched a related niche SaaS start up called TrackMyMail®. Our initial intention was to provide this new service to our mailing clients. At first, we set this new company up as a wholly owned subsidiary of the parent company. Our third partner, Jim, tolerated the diversion but wasn’t thrilled about it.
Soon, Dave and I realized that the new service we’d created could potentially provide great value to other mailers around the country. We began to invest in sales and marketing to reach a much wider market. By 2003 TrackMyMail® wasn’t generating the revenue and income we’d projected. Jim wanted to shut it down. Dave and I still strongly believed in its future and wanted to stay the course. We were at an impasse.
Before you hear the rest of the story, let’s take a look at the current situation. Three partners. They have divided opinions. No one has a controlling stake. So, what now?
The Impasse
We’ve just encountered one of the infamous five D’s that pose risk to a business: disagreement. The other D’s are: death, disability, divorce, and distress.
Had we engaged in a comprehensive exit planning strategy before reaching that impasse, we would have been better prepared for the moment. Instead of having the luxury of time to plan thoughtfully and thoroughly, we had to come up with a solution fast.
Our resolution was for Dave and me to buy Jim out. It would have been a less expensive, cleaner, and simpler process if we’d had an up-to-date buy/sell agreement in place—but we didn’t. After several months of effort, we finally worked out a deal that was amenable to everyone.
The Story: The Middle
While still running the direct mail parent company, we grew TrackMyMail® into a premier provider of mail tracking services—eventually far exceeding our original expectations. We were building a great company with an excellent team.
In late 2005, we spun TrackMyMail® off as a separate entity from the mailing company. Its continued success and growing bottom line were exciting, but we also sensed it was time to adjust our thinking.
Was this thriving business simply a source of additional income, or should we start viewing it as an investment we might one day want—or need—to liquidate?
The Mindset Shift
That shift in mindset led us to some important questions. And if you’re a business owner, you should be asking them too. Here’s one of them:
How attractive do we believe our business is to a buyer today?
Chances are, you already invest in mutual funds, stocks, or both. In the question we asked ourselves above, you could easily substitute the word investment for business. The major difference? You have direct control over the success of your business.
Seeing your business for what it truly is—an investment—lays the foundation for a strong exit planning strategy.
The Story: The Ending
Once Dave and I viewed our business as a transferrable asset, we began to consider tactics for how to increase the intrinsic value of the asset. Not just focusing on top line or bottom line growth, but employing strategies to make the business a much stronger and more attractive company.
We did things to ensure the company’s success whether we were involved or not, thus reducing the dependency on the owners. To do this we had to make sure we had a strong management and leadership team in place, and make hard choices if required. We increased investments in marketing and sales even though we’d see little short-term gain from it. Some of the additional marketing focused more on the company brand itself, not simply the collection of services we offered.
In May of 2007, we decided to splurge on a much larger trade-show booth—one we probably shouldn’t have invested in just yet—for the primary event in our industry. While we may not have been large enough at the time to truly justify such a showing, we believed we would be soon enough. We wanted to appear larger.
At the show, an industry colleague expressed potential interest in “partnering” with us. We believe that decision—the upgraded trade-show booth—along with other changes we implemented as a result of our mindset shift, helped spark increased interest from potential industry partners.
After navigating an exciting—though often stressful—negotiation process, we ultimately secured a firm offer from a publicly traded company, Pitney Bowes. It felt like we’d just won a big race. Without a doubt, it was a successful transaction. But looking back, there are still lessons I wish we’d known earlier—many of which are key elements of a comprehensive exit planning strategy.
Conclusion
The personal story I’ve shared highlights just a few key areas where a well-thought-out exit planning strategy can make a meaningful difference in your business’s success—and in your eventual transition out of it. And there’s so much more to explore!
Want to Know More?
Curious about where your business stands today—and what it could be worth tomorrow? Let’s talk. I’d be happy to share more insights from my own experience or help you assess where you are now and where you want to go. You can also visit my website at www.ExitWellAdvisors.com to take one or more free assessments.
About the Author:
Dave Lokos, Chief Executive Officer
Dave is a Certified Exit Planning Advisor (CEPA) with over 30 years of executive and entrepreneurial leadership, Dave helps owners grow, protect, and maximize business value while preparing for successful transitions. Drawing from firsthand experience and proven methodologies, he guides clients through strategic exits that align business, personal, and financial goals.
ExitWell Advisors
Phone: (240) 687-8716
dave.lokos@exitwelladvisors.com
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