Exit Strategies & Diversification

In these trying times, it’s good to get back to some basic concepts around managing and protecting your wealth.  Today’s financial environment is providing plenty of reasons to take another look at how your business is positioned relative to your personal plans for an exit.

It has been said that “In order to get rich, you need to own a lot of one thing, but in order to stay rich you need to own lots of different things.” 

So, the question becomes “Do you own too much of one thing today – your privately-held business – that might put your overall wealth protection strategy at risk?”

The question that you should ask yourself is:

Am I looking to continue ‘getting rich’ or am I looking to ‘stay rich?’

If you are looking to ‘stay rich’, you will need an exit strategy plan that allows you to protect your illiquid business wealth.  Most likely you will want to monetize a portion (or all) of your business interest so that you can DIVERSIFY your wealth.

Another great question to ask yourself is:

“If I sold my business today, would I turn around and invest all of those proceeds back into a single stock that does not have an actively traded market?”

The answer is most likely an emphatic “NO” because the RISK of only owning one stock – at this point in your life - is too high.  There is a single point of failure with that financial plan because the investment is not DIVERSIFIED.

This is the financial reality of many owners of privately-held business today.

Most of your wealth is ‘tied up’ in your privately held business.

If this is the case, it is good to ask the question “Why am I not more DIVERSIFIED?”

Many times a business owner will answer this question in a few ways:

“I don’t perceive my business to be a RISK” or

“I am not ready to SELL the business so I cannot DIVERSIFY” (As a side note, if you believe that you need to sell your business in order to diversify, I suggest that you consider gathering information on partial exit strategies that allow you to retain control of your business while still diversifying your wealth) or

 “I bought plenty of life insurance to take care of my family if something should happen to me” (in other words, ‘my demise is the only RISK that I really perceive to exist regarding the future profitability of my business’) or

“I am DIVERSIFIED. My business sells many lines of products and/or services” or

you may be willing to admit that “I just have not yet committed to the process of learning about exit strategy planning to better protect my wealth.”

Many business owners have not yet committed to the process of learning about exit strategy planning but would like to protect their wealth against tough economic times such as we are facing today.  However, an exit strategy plan coordinates with your personal goals to allow you to exit your business in a manner and a time period that you find most appropriate.

So now the question now becomes “What needs to happen to get you thinking in this Exit Strategies direction?”

Let’s briefly examine WHY it is so difficult for a successful business owner to focus on an Exit Strategy.

As an owner of your business you are the master of your own destiny.  You have survived the odds against ‘making it’ in business and continue to fight them each and every day.  For the most part, thinking about an exit strategy plan ‘cuts against the grain’ of thoughts of business growth and expansion.

So, how do you begin to turn this Titanic way of thinking towards developing an exit strategy plan that protects all of this wealth that you have accumulated?

Well, the only answer that can logically be delivered to this question is that you seek out the counsel of others who have done this already and begin to gather the necessary information that you need to “think thoughts” of exiting your business.

Gathering information on exit strategy planning leads to thoughts of exiting your business.

Thoughts of exiting your business (most of the time) lead to feelings associated with ‘time and money freedom.’

And if those exit thoughts and feelings can build over a long enough period of time, then you will take action to protect your wealth through a properly timed and well thought out exit strategy plan.

Then, you will measure your results, in part, by how well diversified you have become through your exit strategy plan.

In closing, most business owners will make up their minds to do something when they are good and ready to do so.  Therefore, we can only continue to impress upon the millions of business owners out there that diversification is a key component to securing the success that you have worked a lifetime to achieve.  In this regard, one can say that it is never too soon to begin thinking about an exit strategy plan.  And we leave you with our steady reminder that a pro-active approach to an Exit Strategy is the only approach to a successful Exit Strategy.

© John M. Leonetti