Nothing raises anxiety more than uncertainty, and business owners are constantly up against the unknown. Market changes, comprehensive tax reform, personal developments—any number of events could dramatically change the way business owners operate their business and their decision-making, particularly when it comes to their exit strategy.

While daily business operations are important, it’s critical that business owners keep an eye on their end game. Too much emphasis on the immediate needs of the business could distract from these more personal long-term goals.

In times where unknowns outnumber the knowns, it’s critical that business owners have a clearly defined, long-term vision for their business. Creating a vision and plan for integrating that vision into a business strategy can be as simple as following these seven steps.   

Step 1: Begin With The End In Mind

Start at the beginning. The need to incorporate an exit strategy into business plans begins when individuals acquire or start their business.

How the business will be funded is a primary concern. Will the business use its stock as currency, such as the use of stock to pay compensation and raise capital? Or will the founder(s) avoid diluting their ownership interests in favor of other operating strategies? This choice will have a dramatic impact on the growth of the company and the value that can ultimately be harvested to fund the owners’ exit from the business.

Another key concern to have in mind at the outset is the founder(s) expected time frame to exit the business.

Step 2: Get Personal

It is helpful for business owners to assess their personal financial and non-financial status and future goals as the foundation for future planning. The objective of this assessment is to develop a statement of the life they would like to be leading within a reasonable, and defined, time frame.

Understanding where business owners are today and where they want to be within a given time frame can help identify the costs involved and financial resources necessary to afford the life style of choice. 

We call this future financial need one’s “Happily Ever After Number.” Successful business owners will be able to reach this financial goal primarily from the sale of the business. They will do this by closing the value gap between the value of the business today and that future value needed to fund their Happily Ever After Number.

Step 3: Know How The Business Is Valued

One of the best ways to understand how businesses are valued and what drives that value is to work with one or more valuation consultants. Advisors who prepare valuation reports and merger and acquisition/business broker specialists can provide helpful insights.

Businesses are generally valued using a multiple of adjusted earnings. Obtaining a current valuation will provide a current assessment of these factors.

Given this information, business owners can begin to plot valuation measures using operating budgets and other management tools to estimate the value of the business under different scenarios. Plotting what the earnings and valuation multiple must be in the desired time frame will also help the business owner understand the growth rate needed to reach their goal. An unrealistic growth rate may provide valuable input into the planning process. 

Step 4: Understand Who The Business Owner Cannot Afford To Sell The Business To

Let’s assume a business owner needs $10 million from the sale of her business. She would get $8 million if she sold it to a family member and possibly as high as $12 million if she sold it to a strategic buyer. What should she do?

Business owners should evaluate their exit strategy from the perspectives of their realistic sale desires, options and opportunities. Some buyers or succession options may value a business for higher values than others, but those options may not align with the owners’ end goal for their business.

Step 5: Run The Business With The Goal Of Leaving It In Mind

Once business owners have a target value and exit/transition strategy, they can begin to integrate these objectives into the running of the business. Value Management, integrating value drivers and performance targets into operational objectives, can help guide business managers toward the value target within the desired time frame.

Linking the business’ incentive systems with value management objectives can align management and staff with an owner’s objectives.

Information reporting on key performance indicators can also be tailored to target meaningful value management objectives.

Step 6: Protect The Value That Has Been Created

Business owners can protect the value of their business by upgrading their enterprise risk management strategies. Legal, insurance, human resource, accounting/taxation and industry-specific advisors can assist in reviewing risks and providing risk management options.

Part of protecting a business’ value lies in protecting the business during transition or disruptive periods. Business contingency planning can help ensure operations run smoothly even if something were to happen to key members of the leadership team. Such plans outline corporate governance responsibilities and guidance on key issues management could face.

Step 7: Don’t Go It Alone

A team of trusted advisors can help business owners navigate the risks and plan for success. It is up to the individual owners to identify those who can work together to both plan and execute effective strategies. That said, having one key individual to assist ownership in the capacity of quarterback or personal CFO can help ensure that planning and execution stay on track.

A well-devised and executed seven-step plan can be the difference between whether business owners can realize their goals within their time frame, or miss their window of opportunity altogether.