Why a Five-Year Plan May be the Worst Way to Think About Exiting Your Business

October 5, 2021

We hear it all the time from our business owner clients and friends when we ask about how much longer they plan to be involved in the business:

“I’ve got a five-year plan.”

And honestly, we cringe when we hear that. Because in our experience, the “five-year plan” rhetoric often means:

“I know I need to do something, but five years is so far out that I never actually have to get started.”

And every year after that, it’s still a five-year plan. The planning and exiting gets pushed out indefinitely. This is how business owners lose the ability to call the shots about when, why, and how they finally exit the business and start their next chapter.

Is this you?

Remember: All business owners exit their business at some point – either on their own terms or someone else’s.

At Heritage Financial, we help business owners exit on their own terms…when and how they want.

But exiting on your own terms requires knowing WHEN YOU CAN exit the business comfortably. And that means having answers to these questions:

  • How much in liquid assets do you need to support your lifestyle after exiting your business?
  • What is your business worth and what will that contribute to your liquid assets once you sell?
  • How long until you will have enough liquid assets to start the exit process?

Listen to this story

We recently worked with a business owner that received, unsolicited, a top-dollar offer to buy his business. He came to us for advice on next steps. As we started the process of answering the questions above, it became clear that even though the offer was strong, he wasn’t ready financially. His lifestyle was going to have to change significantly if he went through with the sale.

Our advice to him was to wait. We helped him structure a plan for extracting more cash from his business over the next several years. We showed him how increased savings over the next few years would add to his liquid assets. And we helped him identify a point in the future when he could comfortably accept a range of offers for his business and start the next chapter of his life on his own terms.

He wasn’t ready. But now he knew what it would take to get ready…

and when he would be ready.

Five-year plans easily become six and seven-year plans because the underlying planning hasn’t been done. There is no clarity on what life after the business looks like. And no idea about what is needed to feel comfortable to walk away from your life’s work and start a new chapter.

If you currently have a “five-year plan”, here’s what you need to do next to make sure that, when you are ready, you can exit your business on your own terms:

  1. Get a valuation for your business. Check out our previous blog on this topic (What’s My Business Worth?) and reach out to us if you need a referral for a business appraiser.
  2. Get the planning process started. Our complimentary Three-Meeting Process is designed to answer your most pressing questions: When will I be financially ready to exit my business? What do I need to do until then to stay on track? What do my finances look like after I sell?

You’ll also want to review these other resources we’ve compiled for business owners:

Tools For Business Owners

Someone Offered to Buy Your Business: What to do Next

What’s My Business Worth?

Should I Set Up a Traditional 401(k) for My Business

Common Defined Benefit Plans for Business Owners

Common Defined Contribution Plans for Business Owners

And don’t forget to register for our upcoming webinar: Is the Window for Selling My Business Closing?

Hear Heritage Financial’s President, Sammy Azzouz, and Greg Rush of investment bank Dunn, Rush & Co. discuss the impact of the pandemic, changing tax laws, and higher potential interest rates on what has been a seller’s market for business owners. The webinar takes place on Wednesday, October 20th at 11 AM EST. Register even if you can’t make it live, and we’ll be sure to send you the replay.

Kristin Castner, CFA

Kristin Castner, CFA

At Heritage Kristin is responsible for overall marketing strategy, with a focus on communicating the firm's message to clients and prospects and creating outreach programs to engage clients, partners and prospective clients.

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