What’s Your ‘Nexit’ Strategy?
Over the next 10 years, 10,000-15,000 business owners will be ready for retirement, and may face de-valued stocks, low valuations, and no way to completely exit their business.
How are these business owners going to obtain the lifestyle shift they desire, while maintaining financial security?
Now introducing; the ‘nexit’ strategy.
A nexit strategy is kind of like an exit strategy, except you’re not leaving or selling your business entirely.
When nexiting, you have prepared your business to run without you, and also know that you will need to show up periodically to ensure that the business is running well so you can continue to get checks during your extended vacations.
The process of nexiting also involves hiring a sales and management team that can run the shop while you’re gone.
Nexit (verb) – The baby boomer business owner’s process of exiting their business by preparing the next generation of leaders to run it.
How Do I Know If I Need to Nexit Rather Than Retire?
1. Do you need more money in retirement?
2. Could you never imagine yourself not working?
3. Do you have a team that “couldn’t survive” without your leadership?
4. Could you build more value in your business before you sell it?
If you answered ‘yes’ to one or more of the questions above, you are probably a good nexit candidate.
How Do I Nexit?
Nexiting takes some planning and preparation. Here are the steps to ensure that your nexit is a smooth one that will allow your business to run on its own:
Call an Attorney, Business Broker, or Valuation Specialist – These folks are excellent at telling you how much your business is worth, and what your next best steps are for including your business as part of your retirement plan. A word of caution – your business is probably worth less than what you think. When people think of their businesses value, they typically only consider annual sales. A thorough valuation will include but is not limited to:
a. Annual sales
b. Stickiness of customer base
c. Recurring sales
d. Stickiness of employee base
e. Value of capital equipment
f. Profit margin
g. Documented systems
Document Your Systems – If you started your business and have long-standing employees, chances are most of what it takes to run your business on a daily business is trapped in your head. It’s time to begin documenting your processes. You can do this by naming the main components of how your business operates – marketing and sales, production and delivery, operations, human resources, and financial. Now think of what it takes to execute each pillar of business operations. Step by step bullet points and numbers are helpful at this stage. Assigning tasks to individual team members or business divisions is also recommended. By the way –systems documentation is hard and annoying. There are consultants who really enjoy doing this kind of work. It is worth the money to call them.
Create a Business Development Strategy – Many businesses grew because the owner had “built-in” contacts within the industry that gave them business. Sometimes companies grew out of captive demand or excellent product delivery and reputation. It is likely that your business will not continue to operate at the same level of sales or grow without a strong CEO selling at the helm. But, where and who do you sell to? Your new President and salesperson will need the answers to these questions in order to keep your nexit strategy together. Sit down, and create a plan that answers:
a. Who is your best customer?
b. What should your brand communicate in the marketplace?
c. What marketing sources are your customers looking at?
d. How are you building relationships in your target market?
e. Who are your best strategic partners?
f. What is your sales process?
Hire the Right Sales Person – Even the best systems and business development plan won’t survive without the right business development manager. If you own a small or mid-sized company, the best business development manager can:
a. Manage small teams
b. Identify and solve operational problems that prevent orders from being produced
c. Break into new market segments to generate leads and close sales
d. Work with little or no direction from you, and can run your business
If you own a business in the current economic climate, and are 5-10 years from retirement, you have some work to do. Getting good financial and legal advice, documenting your systems, creating a business plan, and hiring the right leadership are all simple tasks to complete.
Though the tasks to complete for retirement are relatively easy, they take time.
Get started now so you are well prepared for your future.
Jamar Cobb-Dennard, JD is a business broker at Indiana Business Advisors (IBA). For nearly 40 years, IBA has helped 2,100 business owners prepare, value, and sell their companies. More at online Indiana Business Advisors.