Exit Planning Mistakes
Allegiance Capital is the eighth company David Mahmood built. As an entrepreneur and an investment banker, I’ve learned from my own mistakes and the mistakes I’ve watched others make. Beware of these pitfalls:
1. Putting off the exit planning exercise
I can’t tell you how many times Allegiance Capital has been brought in to help a client in crisis sell a business. Executing the exit plan you desire requires that you be in the driver’s seat. The time to consider exit planning is when things are going well for you and the business.
2. Failing to consider all liquidity options
Your ultimate liquidity event can take many forms. You may choose to exit the company in several stages — or all at once. A common mistake is to view an outright sale of the company as the only option.
3. Letting exit planning distract you from operations
Planning a successful exit may be the most significant event of your life. You can’t be an expert in legal issues, accounting, taxation, deal-structuring, valuation, exit options and the universe of potential buyers. Use all of the internal and external resources at your disposal to enable you to remain focused on managing and growing your company while working your exit plan.
4. Lack of vision for life after the exit
Many business owners neglect exit planning out of fear of the unknown future. Ask yourself 1) what you would do if you didn’t have the business and 2) how much money you need to do that. Keep in mind that the “what” can include a number of options beyond retirement. For example you can fund another business, or stay on to run the current business with the financial peace gained from the liquidity event and a more diversified personal financial strategy.
5. Failing to leave yourself enough time
Positioning your company for an exit takes time. And when you go in search of a transaction that will accomplish the type of exit you are seeking, you need to plan for an average of 12 months to get the deal done.
Although an exit is “scary stuff’ to many business owners, don’t blow it out of proportion. It’s just like anything else — it starts with a plan. Getting that done makes the rest much easier. And you’re much more likely to achieve the best for yourself, your company, your shareholders and your loved ones if you’ve taken this step. Remember, people who plan are more successful than people who don’t.