Exit Planning: Opt for Pre-mortem rather than Post-mortem
We know that 55% of all business exits are via less than favourable circumstances. That is either death, disability, bankruptcy, receivership, liquidation or simply closing the doors and walking away. This is indeed a gloomy reality. Under these circumstances, we usually then conduct a post-mortem. What went wrong? When did it go wrong? Was there anything that we could have done differently to avoid or improve the situation in which we now find ourselves?
Perhaps we could improve these statistics by conducting a pre-mortem instead of a post-mortem. That is, sitting down in advance to do some genuine planning with a logical and clear head to put strategies and systems in place to avoid or improve our chances around these disastrous business outcomes. That is, “get on the front foot” and take control so that our business exit is as good as we can make it.
At this point, I can hear people wondering how on earth they are going to improve their chances around death and disability. Part of the answer, of course, is to ensure that if you are key to the business and/or if you are carrying moderate to high levels of debt, ensure that you have adequate levels of insurance to cover that risk. It may sound hard, and there can be unique mitigating circumstances, but avoiding receivership, liquidation or simply closing the doors often comes down to proper planning and putting systems in place early enough to ensure good business management and that build genuine business value.
There is a lot of talk at present around corporate governance and risk management for small to medium enterprises (SMEs) and family businesses. That is, putting appropriate strategies and systems in place to ensure that these businesses have robust management systems in place, and actively recognise and manage the risks that they are exposed to every day in the course of operating their businesses. Surely a pre-mortem exercise is part of good corporate governance and risk management. What can go wrong and how do we mitigate that risk by either avoiding it or dealing with it effectively should the worst happen?
A doctor, who is also a good friend, once told me that we should all view the years that we have beyond that age of 50 as a bonus or a privilege rather than an expectation or something to be taken for granted. After initially being shocked, I have since given this some thought, and come to the conclusion that he is indeed correct. Given then that the average age of business owners in this country, and indeed the majority of the western world, is now approximately 58, why do most continue to operate with no exit or succession strategy? It’s important to remember that we have a lot more control over the outcome of our pre-mortem than we do over the outcome of our post-mortem.
This post was originally published on November 29, 2015, and updated on November 20, 2019.