Exit planning provides a clear vision for your future, prepares you and your business for your departure, makes your company more appealing to buyers, and helps you achieve your exit goals. However, it is essential that you, the business owner, create attainable goals for your exit plan.
Setting goals is an effective process that motivates you to turn your vision into reality. It helps you decide where you want to take your business and when you want to exit. Goals focus your efforts through knowing what you want to achieve, helping you spot the distractions that can easily lead you astray.
How to Set Attainable Exit Planning Goals
Setting exit planning goals helps you decide what you want to achieve from your business exit. You might have spent your best years and savings building your business from the ground up. Therefore, you expect this once-in-a-lifetime business exit to provide monetary and legacy benefits. Setting goals helps separate the significant from the irrelevant and keeps you motivated.
To create attainable exit goals:
- Understand your business’ current situation
- Understand your company’s market niche
- Understand your exit timeline
- Create exit goals that align with your timeline.
1. Understand Your Business’ Current Situation
When creating goals, you need a starting point on which to base them, and your business’s current situation provides just that. Get a professional business valuation done to achieve a deep understanding of your company’s assets and liabilities.
A business valuation provides you with a complete picture of your company’s health, future potential, strengths, and weaknesses. It reveals what you could get if you sold your business today—an amount most likely insufficient to fund your comfortable retirement—and you need to do to increase your company value to such an extent that you get your desired exit.
Getting the business valuation helps you identify the value gap. This is the difference between the current value and the desired value of your company.
Your expectations from your business exit may be very high. However, you can set realistic and attainable exit goals by understanding your company’s current situation. This will give you an accurate understanding of what is possible to attain before your scheduled exit date.
2. Understand Your Company’s Market Niche
The condition of the economy and your specific industry’s business cycle will impact the viability of the sale of your company. Your business becomes more valuable to prospective buyers if your industry trends up. If your industry is trending down, your business will lose value in prospective buyers’ eyes.
Usually, an upward or downward industry trend lasts for several years, enabling you to plan your exit when your industry is scaling high to get a better exit outcome. Keep a close watch on industry indicators and act accordingly.
Another critical factor playing a significant role in the sale of your company is the market appetite for mergers and acquisitions. When there are plenty of buyers in the market and few companies available for sale, the odds are in your favor. So, plan your exit to benefit from a low supply-high demand environment.
3. Understand Your Exit Timeline
You cannot consider exiting after you receive an offer for your company. Start early, discuss the pending transition regularly with your management team, and strategize even if your company is years away from the exit.
Typically, it takes nine to 12 months to create a detailed and well-defined exit plan and anywhere between three to five years to enhance the company’s value and prepare it for the transition. The final exit process could take another year.
Depending on the tentative time you want to exit your business, find out the available period you have to prepare your company. Knowledge of that timeline allows you to define realistic, feasible goals.
The timeline may need to change, depending on the value gap. In the value creation phase of your exit plan, focus on your company’s strengths and enhance them. Also, concentrate on mitigating your company and industry-specific risks. Develop a value creation strategy and create initiatives to increase your business’ value.
4. Create Goals that Align with Your Timeline
An effective way of making goals more powerful is to use the SMART mnemonic.
- S – Specific
- M – Measurable
- A – Accurate
- R – Realistic
- T – Time-bound
Specific Goals. Specific goals inspire action, well-defined, clear, and unambiguous. For example, “I want to retire on my 60th birthday.” This is clear and gives a well-defined timeframe to achieve the goal. Restate the goal as “I want to retire in about seven years, around the time I turn 60.” It may sound the same but does not inspire you to take action soon, as it is easier to push forward. It is a vague goal. Specific goals can be changed, but they also ensure that you know what you are pursuing, how you will do it, what you will get from it, and what will happen if you do not follow through.
Measurable Goals. Goals with specific criteria measure your progress towards their accomplishment and keep you on track. For example, “I want to sell my business for $25 million on a particular date in six years” is a measurable goal against another goal: “I want sufficient funds to retire comfortably.”
Accurate Goals. Instead of relying on gut feeling, you need to work with professional advisors to determine how much money you need to retire comfortably. Set accurate goals based on proper analysis of your current business situation and your desired financial condition post-retirement.
Realistic Goals. Your exit goals should be within reach, realistic, and relevant to you. When business owners set unrealistic goals, they eventually realize that they are unattainable, lose hope, and stop pursuing them. Realistic goals motivate you to pursue them even when you face obstacles.
Time-bound Goals. Your exit goals must have a clearly defined timeline. The timeline should include a starting date and a completion date. Setting these deadlines helps create urgency to take action and keeps you moving forward.
6 Additional Tips for Setting Exit Goals
- State each goal positively and specifically.
- Be precise by scheduling dates, action items, and amounts to measure achievement.
- Set your priorities to focus on the most crucial goals and avoid feeling overwhelmed by a large number of goals.
- Write the goals to make them concrete and compelling.
- Keep operational goals small, incremental, and achievable to create opportunities for reward and show progress.
- Set performance goals instead of outcome goals.
Create Attainable Exit Goals
Exit goals play a significant role in the success of your exit plan. Create attainable, realistic, yet challenging goals to achieve your desired exit. Understand your current business health, market situation, and exit timeline to set reliable exit goals.
We at Value Scout can help you connect with experienced exit planning advisors to help you through the process. Get in touch to know more.