Can You Answer 5 Questions about Your Exit Strategy? Part 2 / by Kerri
Continuing on with questions about your exit strategy, here are three more questions to help you explore the bigger picture and opportunity your business offers if you start planning early.
- What do you need out of a transaction or transition to have the financial independence for your next venture/adventure/retirement?
This is really two questions and to answer the first half, you need to answer the second half first.What will you do next? Do you have a plan? Do you have a project, venture, hobby in mind? Will you travel for 2 years and then build a house up in the mountains? Will you go back to school as a student or professor? Will you volunteer?Your plans for your next steps or avocation create the baseline of your financial requirements from any transition or transaction you decide on. Think through your aspirations for the lifestyle you want and the goals on your bucket list you want to fulfill once you exit this business. Clarify what you’ll be doing and what it will take to fund your financial independence. That will set some parameters on your company valuation and the structure of your exit to ensure your future.
Run the numbers so you know how much you need from the deal so you know with relative certainty that you can pursue and achieve your life’s goals. That has to include basic living expenses, health care costs, long term care costs; and any education funding for children or grandchildren, travel costs, replacement vehicles, vacation home, weddings, philanthropy, legacy planning, or tax liabilities.
- Do you know what your business is really worth on the market?
You need two numbers. In the end it’s up to you to make sure they match.
You need to know how much cash you need to take away from the sale of your business, regardless of the form the transaction takes. And you need to know with brutal honesty the market value of your business – what it is actually worth, not what you think it’s worth.
Market value always trumps what you ‘need’ out of the business. Don’t get trapped into terms you don’t like because you were only looking at the valuation number. Use independent experts to value the business before you get locked in during a negotiation. They can often show you some strategic changes to increase market value in your favor.
- What should you be doing now to minimize your future tax liabilities?
Don’t look at taxation in isolation. Revisit your business plan now and consider the tax implications for your growth curve. Expand your strategic planning to include contingency planning, succession planning, transition planning, and then run some financial models to see which options look most attractive for your future.
Whether you intend to sell your business in the next couple years, or you’ve set a date 5-10 years from now, it’s never too early to start the planning process. Planning now will help you clarify your ultimate goals you are aiming for. The business will be the primary vehicle or source of funding to provide financial freedom so you can achieve every goal you set.