Knowing your likely exit strategy is imperative. It is like knowing the ideal route to take to arrive at a certain destination. If you do not know the proper route, then it’s nearly certain that either you will get lost, or your journey will be longer and harder than necessary.

There are four different exit strategies. Each exit strategy demands a different route to success. For example, passing your business to your kids is a very different exit strategy than selling your business to an outside buyer, and therefore faces different issues, and uses different planning tools and tactics.

There is an old saying that the best time to plant a tree is thirty years ago, and the second best time is now. When it comes to planning one’s exit, the second best time to begin is now.

There are two reasons planning exit needs to start now. First, if you have not established clear exit goals and objectives, then it’s impossible to know if the business decisions you make today will help or hurt your exit success. Second, many of the business, financial, accounting, tax, and legal tactics that can enhance your success at exit take years to implement and reach their full effectiveness. The less time you have to prepare for exit, the lesser your results may be.

Time after time, client after client, research study after research study, the answer remains the same—business owners’ number one goal at exit is to achieve their financial win, however they define it.

In our experience, the most common financial goal is to reach financial freedom, which we define as getting to the point where working is a personal choice, not a necessity. Money cannot buy happiness, but business owners who have successfully reached financial freedom seem to smile on a regular basis.

It happens all the time that one company in a given industry sells for a higher multiple of earnings than another company in the same industry—why is that?

What drives value at sale?

What can do you between now and your exit to maximize sale value?

How do external market conditions factor into getting the best price for your company?

If your likely exit strategy is to one day sell your company to an outside buyer, then how to maximize the sale value becomes a critical question.

Most business owners will only exit one time. Therefore, exiting is a new experience, one they have never been through before. If you arrive at the “one yard line” only to learn that you or your company are not fully prepared in some important manner, then it may be too late to do anything. Most owners have too much at stake to risk learning late in the game that something crucial has been missed or overlooked.

Knowing what your company could be worth is an important part of accurate exit planning. The challenge is that valuing a business is as much art as science. Furthermore, in some situations you may want the business value to be a high as possible, such as if you are selling the company. In other situations, you may seek to establish a lower defensible value, such as if you are doing some complicated tax planning. Regardless, it is important to know what your company may be worth to do proper exit planning.

When it comes to achieving a successful exit, timing may not be “everything” as the saying goes, but it is extremely important. Many business owners underestimate the influence that outside factors such as the economy, interest rates, and tax policy have in driving their exit success. For example, your company’s value may experience significant swings from higher to lower due to market conditions. Timing the market to your advantage is an important part of exit planning.

When it comes to selling a company, there is an old saying that the purchase price is vanity but cash is reality. When you sell your company, whatever you do not receive in cash at the closing table is at risk. Therefore, it is an important for owners who intend to sell their business at exit to understand why some deals are all cash transactions, while other business sales involve complicated and potentially risk terms such as earnouts, installment payments, and non-compete agreements.

Do you receive a constant stream of emails, voice mails, and letters purportedly offering to buy your company? Technically, these are not offers. They are fishing lures and bait being thrown your way. The question is should you nibble, bite, or ignore these? If you ignore them, are you missing a potential opportunity? If you respond, are you putting your company at risk, or wasting precious time? How can you know what to do?

If you share ownership in your business with one or more other persons or parties, then ultimately your ability to successfully exit is likely tied to their ability to successfully exit. Your exit goals could undermine theirs, and the reverse. For example, one owner may want to sell the business and another may want to pass it to the kids. Or, one owner may want to sell at a lower price and another owner wants a higher price. Or, one owner may want to exit sooner and another owner wants to exit later.

Nobody is right or wrong in these situations, the owners just have incompatible goals. Without alignment, you and your co-owners may find yourselves rowing your mutually-owned boat in different directions.

Selling a business to one or more of your employees can be richly rewarding. To see the business continue forward under the leadership you selected and groomed, acknowledges all your efforts and extends the business legacy. It can also be extremely difficult and risky. Your employees likely lack cash and collateral. It may be uncertain that they can profitably run the business without you. Critical issues including taxes, cash flowing payments to the selling owner, and dealing with personal guarantees need to resolved, or the whole thing may fall apart.

Your key people are likely one of your company’s most valuable assets. Without your key people, you likely cannot achieve a successful exit too. Many owners struggle with finding the right way to incentivize and reward key people, without doing unintended harm. Too often, owners consider or pull the trigger on giving key employees ownership in the company because that’s the only method they really know about. There are many tools and tactics on how to reward your top people, and keep them up to and beyond your own business exit.

If your exit strategy is to pass your business down to a member of your family, you face a unique set of issues, such as making sure the successor children are ready to run the business by the time you want to leave. Also, “Passers” (as we call owners with this exit strategy) with some children working in the business and some who are not must figure out how to create a business exit that is fair to all of their children, without splitting up the business in an unworkable manner. Woven into these issues are family dynamics, relationships, and realities which can undermine the owner’s successful business exit.

For most business owners, exiting successfully includes creating a business legacy. We define legacy to mean your sense that you are leaving behind positive, lasting outcomes for the business and the people it impacts. Legacy, however, is easier to define than measure. For this reason, many business owners struggle with getting their arms around their own legacy aspirations and feeling good about their outcomes.

Regardless of how you define legacy, one thing is universally true—a business legacy cannot be created and protected on short notice. It takes years of planning and work before your exit to make sure that when you do exit, your legacy will live on.