How To Start Your Own Business

Part 5: Exit Strategies

Aired June 3, 2002

It's just as important to figure out how to walk away from your business, as it is to plan on starting it. That's the message from small business experts who stress the importance of an exit strategy for any new business owner. Bad planning can destroy the opportunity to enjoy the fruits of your labor. In part 5 of How To Start Your Own Business, 90.3 WCPN®'s Mike West reports on planing for retirement, even before you make that first sale.

Mike West: Starting your own business could be compared to a courtship. You think of the company constantly, sacrifice your own happiness for the sake of the business. You make lots of plans and are eagar to spend all of your time together. Not to mention spending all your money or going into debt to keep the romance alive. With all that passion it's no wonder many small business owners don't like to think about the day they will walk away from it all.

Sharon Brito is writing a business plan at the Business Information Center in Cleveland. She wants to start a roofing company and is taking the first steps. Brito says it's nothing personal, just business and she knows exactly what she wants out of her company.

Sharon Brito: I plan to do stocks, I'm actually plannin' to work, hopefully by the time I'm 50 I can be done doing what I want to do, go anywhere I want. Never work another day in my life, that's what I'm hopin' to do.

MW: Brito is optimistic. Insisting her chances are good because her husband and other family members already have roofing businesses and she knows the ropes. Brito has a dollar figure in mind for when it's time to sell.

SB: I just want to be in this 10 or 15 years, build it up to a real substantial amount for me that will already be in the bank and then on top of that be able to sell the company to somebody else to have more, and then just go on and have a merry life.

MW: On the other end of the spectrum is garage owner Sam Bell. He could wind up working until he goes to the big tool box in the sky.

Sam Bell: Never had a thought of leaving it. I guess there are people who have that in mind. I always figured that I would do this until I couldn't do it anymore.

MW: Bell just assumes a loyal worker or his child will carry on after he leaves.

SBell: I expect someday I'll retire, but I hope that the business will continue. It's my hope and my expectation that Joe, who's my head mechanic, will continue to run the business. My son Josh, I hope, will continue to work with him.

Steve Millard: Because often times they've grown up with their business, they've poured everything into it. In a lot of ways sometimes their business defines them. They have become one in the same with their business. And so the idea of parting with it, selling it to somebody or leaving it to somebody in the next generation is very difficult for them to handle. You keep putting it off because you want to put off the idea of your own mortality. Your business is the same way.

MW: Steve Millard is the executive director of the Council Of Smaller Enterprises, or COSE. He says if you don't make these critical decisions early there's a danger of waiting too long to leave.

SM: You have to think about when is the right time to cut the string and to move on, when is it time to harvest that business. Every business opportunity has a cycle and you always need to be thinking about that cycle for your industry so that when your at the top of the cycle is the time to cash out not when your at the bottom. Often time people aren't cashing out of their business until it's distressed at that time it has the least amount of value to any other potential buyer.

MW: There will be forks in the road that should be planned for. You can go public and sell stock, but that means losing control to a board of directors and following countless rules that affect publicly traded companies. You can expand by taking on investors, but you'll have to answer to them when you make business decisions. Or you can simply decide how much money you need in order to retire or to start another venture. Alma Alfonzo opened her west side bakery a year ago. Part of her business plan includes an exit strategy which will give her children jobs.

Alma Alfonzo: The ideal situation would be, pass it on generation to generation. However if the money is right and the potential is right I would definatly entertain any type of other opportunities. The business itself has a lot of potential.

MW: Alfonzo says she hopes to expand to wholesale customers and national distribution of specialty products or franchising the bakery deli business. But she admits it would be easier said than done.

AA: It's a baby now, so it's in its very infancy even the idea of selling it at times sounds sad. But at the same time you want to make it evolve and you want to make it grow and I think that was what was mainly in my mind when I started developing the plan.

MW: With all the work and planning don't lose sight of what starting your own small business is supposed to do - make your life better. Steve Millard says a healthy goal for your exit strategy is one that allows you to eventually enjoy the rewards of years of hard work.

SM: It's about making your life better at some point you decide that here is where my business could be and you may be there you may be beyond that, but at some point, cash out harvest the business get the value for which you started the business and move on and do something more fun. Maybe it's another business maybe it's the trips you always wanted to take, or the time that you've never had.

MW: You should also be prepared for your demise. Millard says if a business owner drops dead without a will and clear instructions on how to carry on, or break up the company there could be major problems. Family members and business partners can be at odds. That can lead to expensive law suits and hard feelings. It is such a big issue that there are consultants and lawyers that specialize in planning how to hand down your company. In Cleveland, Mike West, 90.3 WCPN News.