This is the first article in our PREP series, which shares how we think about four stages of preparing a business for an eventual exit: Planning, Records, Evaluation/Valuation, and Projections. The series draws on our work with business owners, where planning for the company and planning for the family’s wealth go hand in hand.
Here’s a question every business owner should be able to answer:
What would happen to your business if you couldn’t walk through the door tomorrow?
Sometimes I ask it a little more bluntly: What would happen if you got hit by a bus?
It’s not exactly a subtle way to start a conversation, but it tends to get an honest answer.
For many business owners, the answer is some version of: The company would probably run for a while, but eventually things would start to unravel.
If that sounds familiar, you’re certainly not alone. In many privately held businesses, the owner wears every hat. You may be the rainmaker, the relationship holder, the chief decision-maker, the problem solver, and the keeper of institutional knowledge built over years, and sometimes decades.
You built the business that way because it worked.
But if you eventually want to transition or sell your company, that same dependence on you can become a problem.
You may have spent 20 or 30 years building your company. When it comes time to sell, you understandably want those years of hard work to translate into value.
A potential buyer, however, may look at the business differently.
They want to know what happens after you leave.
Will your customers stay? Can your management team make important decisions? Will your key employees remain with the company? Are your processes documented? Can the business maintain its revenue and profitability without your daily involvement?
Put simply, a buyer wants to buy a business that can continue to succeed after its owner walks out the door.
If too much of the company’s value depends on you personally, a buyer may see risk. And risk can have a direct impact on both the attractiveness and value of your business.
That’s why preparing for an eventual exit involves more than growing revenue or increasing profits. It also means building a business that is transferable.
There’s an easier way to begin thinking about this.
Start by asking yourself:
When I go on vacation, who runs the company?
You probably have someone in mind. Maybe it’s your COO, general manager, longtime employee, family member, or a small group of trusted people.
Now take the exercise one step further.
What happens if you’re gone for a week without answering your phone?
How about a month?
Can your team make important decisions without you? Can they handle your largest customers? Do they know how to respond when something unexpected happens? Can they work with your lenders, vendors, and other important relationships? Do they understand what drives the financial performance of the company?
Most importantly: Does the business continue to operate effectively without you?
Your answers can tell you quite a bit about how prepared your company really is for an eventual transition.
For entrepreneurs, the idea of making the company less dependent on them can feel counterintuitive. After all, your knowledge, relationships, and decision-making may be a big part of why the business became successful in the first place.
The objective isn’t to make you unimportant.
It’s to make the business more important than the owner.
That means building the people, processes, and systems that allow the company to operate independently.
It could involve developing the next generation of leadership. It may mean documenting processes that currently exist only in your head. It could mean transitioning important customer relationships to other members of your team or giving key employees greater authority and accountability.
The specific steps will be different for every business.
But they have one thing in common: they take time.
One of the biggest misconceptions about exit planning is that it’s something you do when you’re ready to sell.
By then, some of the most valuable opportunities may have already been lost.
Creating a company that can thrive without you can take years. Leadership needs to be developed. Processes need to be institutionalized. Customer relationships may need to be broadened. Weaknesses need to be identified and addressed.
That’s why we encourage business owners to think about their eventual exit even when that exit may be years away.
For many owners, the business also represents the largest share of their personal wealth. How and when it changes hands can shape retirement income, taxes, and the legacy you leave behind. That’s why we treat exit planning as one part of a coordinated wealth strategy rather than a standalone transaction.
That thinking is the basis for PREP, the framework we use at Coastal Bridge Advisors for business owner planning. Each stage addresses a different part of what makes a business transferable, and each builds on the one before it.
This series takes each stage in turn, beginning with Planning.
Before worrying about what your business might be worth, start with some fundamental questions: Where is the business today? Where do you want it to be? What does your eventual exit look like? Who will run the company without you? And what needs to happen between now and then?
You don’t need to know all the answers today.
But you should start asking questions.
So, start with this one:
What would happen to your business if you couldn’t walk through the door tomorrow?
If the answer makes you uncomfortable, that’s useful information.
It may also be the beginning of one of the most important planning conversations you’ll have about your business.
The Business Planning Unit at Coastal Bridge Advisors can help you start that conversation and build a plan around the future you want for your business.
If you’d like help thinking through the PREP process for your business, please connect with your financial advisor or reach out to Brian Bannon directly at bbannon@coastalbridgeadvisors.com.
Brian Bannon is Director of Business Planning Services at Coastal Bridge Advisors, where he works with business owners to prepare for the eventual transition or sale of their companies. Drawing on his experience as an entrepreneur, business owner and investor, Brian helps clients navigate strategic planning, financial records, business value considerations and financial projections in preparation for a potential transaction. Before joining the firm, he founded and grew Thermaxx Jackets, which was acquired in 2021, and helped grow his family's environmental cleanup and demolition business, which was sold in 2018.
Disclosure: This article is provided for informational purposes only and should not be construed as investment, legal, tax, or accounting advice, or as a recommendation to buy or sell any security or adopt any particular financial strategy. Every individual’s circumstances are unique. Readers should consult with qualified legal, tax, and financial professionals regarding their specific situation before making financial decisions.