“If you don’t know where you are going, any road will get you there.”

I’m amazed at how many business owners think about exiting all the time but never do any real exit planning. The most successful business owners I know have an exit plan on the day they open their doors. Their business decisions are synonymous with the plan. To navigate without a destination is like “trying to hold the wind up with the sail,” as Willie Nelson once sang.

As you go through the years in your business, are you focused on building equity? Business equity grows when you pay down debt, increase cash flow and add tangible and intangible assets (intellectual property rights, brand, etc.). On exit, it is this equity that is your 401K retirement, reinvestment cash for another business investment or possibly very early retirement.

Having an exit plan for your business is like setting any type of major goal — it keeps you focused on the things that really matter. Here are some things to consider:

1. Set a financial goal. How much money do you want to receive from a sale to ensure financial security? This is the most important question as it will drive proactive business and investment decisions. Examples include: a) diversifying into new markets, b) adding new product or service offerings, c) acquiring or merging with other businesses, and d) automating internal business processes.

2. Understand value and salability issues. With the help of your advisors, you need to know how to drive value in your business so that it is consistent with the financial goal you have set. Salability deals with internal business conditions and external market conditions that affect marketability (the size of your buyer pool), transferrability, and how much leverage you will have when negotiating with buyers. External conditions are usually not in your direct control, such as market changes, industry or financial conditions. For example, your goal to receive all cash from a buyer may not be possible because of a downturn in your business or industry.

3. Tax and legal consequences need to be evaluated.  For example, if your company is a C-corporation and you sell only the assets (name, goodwill & trade, fixtures, furniture, equipment, vehicles, inventory, work in process, etc.) there would be significant adverse tax consequence as compared with selling the assets of an S-corporation, partnership, LLC or sole proprietorship.

It’s never too late to begin exit planning. By doing so, you will be able to narrow the list of exit routes to determine which one is best and consistent with your long term goals.