Exit planning is part of owning a business. But when should you start thinking about selling? Too many entrepreneurs think of exit planning as part of their retirement; something to start thinking about at the retirement stage, but not before. As understandable as it may be, this can be a limiting view, both for an entrepreneur's personal finances and for the company's fortunes.
An alternative considered by very few business owners is to exit in stages, first exchanging some of the company's equity for additional capital and then making a full exit when the founder is ready to retire.
This approach can inject capital for expansion at critical stages in a company's life and can help solve some of the management problems that plague many founders once their companies are established. As always, timing is critical for any major business move, and finding the right source of new capital can make a big difference too.
Businesses tend to thrive on strong growth, but as a business becomes established, growth can naturally slow down, even when things are going well. You may have a hard time growing your market share in a field that you helped saturate. It may already be working so well that further operating efficiencies are hard to come by. Those things can make it a healthy company, but they can also prevent it from generating the capital needed to fuel further growth.
It all amounts to a kind of mid-life crisis for many companies. The days of explosive organic growth, massive reinvestment of cash, and rapidly rising market share are over, and expanding operations requires more capital and capacity than the company can muster on its own. This dilemma is often reflected in the founder's own situation.
Great founders and business owners are not necessarily good managers. As your business grows, this distinction may become more apparent. Your company still relies on you for strategic guidance, but doing all the little things necessary to execute that strategy can easily become too much for anyone, especially someone who is also the captain of the ship. Eventually, most founders reach a point where, having done a great job running the early stages of the company, they find it increasingly difficult to sustain this growth into the future.
A provider of strategic capital can help you break through the doldrums by providing the funds needed to expand into new markets and adding experienced voices to the company's executive circle just when the founder needs them most. But it all depends on choosing the right time and the right partner.
Increase capital when you can use it. Not when you need it.
Before you sell any of your ownership interest in the business you founded, you should have a clear plan for how you will use the resulting capital. And that plan should be tied directly to your growth strategy. There are other ways to cover short-term cash flow problems: Equity financing should expand the reach of your business, not help it make ends meet.
At a time of growing market uncertainty, cashing in some of the equity you've built up in your business may be more than a way to kickstart your retirement. It can also be an important way to balance your personal financial portfolio. And the additional capital and executive insight your financing partner brings can help your business grow, allowing you to generate steady income even as you share your company's capital.
An expert from Heritage Financial Advisors can guide you through your options and help you arrange the phased exit that best suits your needs. The first step is to maximize the value of your company, usually by optimizing operations and processes. Next, you need to decide how close you want to stay to your company's day-to-day operations and strategic decision-making. Do you want to have the last word on all matters, with a clear majority stake in the company? Or can you use an executive partner to share the load?
The answers to those questions will help you develop a plan to withdraw some of your capital while staying as closely tied to your company's operations as you choose. When it all comes together, you'll enjoy the benefits of an even stronger leadership team and strong working relationships with international financial and business experts. Your business will be ready for its next major phase of growth and you'll reap the rewards of all your hard work while continuing to benefit from the renewed strength of your business.
Selling some of your equity in the company you founded is a big step and, for most founders, very emotional. It's also completely normal, especially for companies and founders who are unclear on their path to the next level of sustained growth.
Proper support from the Heritage Financial Advisors team will save you a lot of headaches and will guarantee you the peace of mind that you have properly evaluated all the options to make the right decisions at the right time.