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.
Most business owners will see the title here and skip the whole thing. After all, they’re too young and too busy in the business to answer questions about their exit strategy. Why should they start planning their exit strategy now?
You’re not one of them. That means your eyes have been opened to the imperative of thinking about your exit from the outset – or at least from today forward.
You realize that you have no intention of working this hard for another 5, 10 or 20 years. You’ve built a business you are proud of, that rewards you nicely today and you want to be able to walk away on your terms on your timeline.
Sounds simple and reasonable. But for many logistical, emotional, and financial reasons, it can’t happen overnight. Unfortunately, most business owners neglect the topic, don’t consider the decisions, and leave the process to the last moment. Unlike their decisive leadership that got them to this point, they’ve sidestepped the following questions for various reasons. You don’t have to.
There are five key questions about your exit strategy you do want to spend time considering, and exploring the tradeoffs of different answers. Sometimes the answer to one dictates the answer to others, but if that one answer changes, you open up other latent possibilities you’d never thought of before. When you lay out your answers to these questions, you will be in a better position to take timely steps and integrate all the necessary elements for your exit. You will be in control of effectively negotiating a successful business transaction to achieve your optimum exit.
Here are the first two questions about your exit strategy:
1. How much longer do you want to be actively involved in the business?
Vague answers like ‘at least 5 more years’ are a way to avoid the question. Dig deeper. Maybe it’s easier to look at what you want to accomplish in the business before you’re ready to walk away. This date is important because it triggers every other action, trigger and date along the way to get there.
Most successful exit transactions take long-term strategic planning. They can’t and don’t come together in 60 days. You must start the process before you ever thought it would be necessary because it takes far more time than you imagined to line up all facets to suit you.
To maximize the value of your business when you do exit, you need to have a clear goal for the company and for your own/your family’s future.
2. Who will be your likely successor?
Have you thought about who should be your successor? Should it be your children, one of your children? Should it be your employees? Or would you look for a buyer well-suited to the business, who can take it to new heights? Maybe you think it’s in your customers and staff’s best interest to be acquired by an industry giant or your biggest competitor?
There are many options. What’s optimal depends on you, your goals, your industry, your company culture.
I’ll post the other three questions you need to answer shortly.
How do you select an attorney? How do you select a CPA? How do you select an M&A Advisor or a banker?
For each member of your exit team you’re looking for experience, credibility, project management, confidentiality, communication, cooperation, a systematic process. That’s equally true for your exit strategist who will help you stay focused on your exit goals, explore your exit options and help you get out so you can move on to your reinvention (fka retirement).
For anyone who says they can do the exit planning piece for you, here are five core questions to make it clear to you what they will do for you.
- What is your specialty? What is your core business?
Your current advisors probably do an excellent job of helping you build and grow the business, the objective when you hired them. Is their core business helping you exit or is it to fulfill some other core objectives for the company?
- How will you charge me for exit planning services pre and post transaction?
If you engage your licensed expert (attorney, accountant, tax advisor, insurance broker, wealth advisor, business broker) to guide you through the exit process starting years before the transaction, how would they charge you for that new service? Would it be at the same rate as you currently pay them for their licensed expertise, or some other formula?
- How engaged will you be in my operational implementation and transition up to the transaction?
You need to know if they will be telling you what to do or helping you complete those tasks to prepare the business for sale.
- Will you help me assess exit options and timing/tax/liquidity impact of each?
The greater the lead-time, the more exit options you have. Will your advisor work with you 2-5 years in advance of your targeted exit to explore those options?
- What will you do to assist me in determining my reinvention plan and my goals and lifestyle beyond the business exit?
You increase your likelihood of a successful and prosperous exit transaction when you have a clear reinvention plan spelled out of what’s next. Will your exit strategist assist you to explore opportunities and identify criteria, needs and goals that the business exit will allow you to achieve?
You need an exit strategist who is focused on you, your goals, your exit, your transition.
You want an exit strategist who has years of experience focused on exit planning and the strategic transition (not just the transaction).
Do your due diligence on every member of your exit team, starting with the quarterback – your exit strategist.
P.S.To avoid possible pitfalls that could potentially derail your exit transaction plans, get your team on board early. Please contact our office if you would like to discuss your objectives and timeline in confidence.
The question isn’t what to do. You already know that. It’s actually doing it that’s the problem.
Below are the typical excuses for not doing what you know you should, even if you’re highly motivated, even if you want something very badly, and even if you know exactly what you need to do to get it; if you’ve got these internal circumstances operating, you AREN’T going to be able to do it.
The 10 of the most common excuses for inaction, include:
Excuse #1: “I’m too stressed out.”
Excuse #2: “I don’t believe I can.”
Excuse #3: “I don’t have the time.”
Excuse #4: “I don’t have the energy.”
Excuse #5: “I’m too emotional.”
Excuse #6: “I’ll always be the way I am.”
Excuse #7: “I’m afraid I’ll make a mistake.”
Excuse #8: “I’m too sick.”
Excuse #9: “I’m too skeptical.”
Excuse #10: “I can’t do it alone.”
Whatever your particular challenge may be, if you can identify with the challenge of knowing what to do, but still not doing it, then I’ve got life-changing news for you.
These typical excuses can effectively paralyze you — making it virtually impossible for you to take the actions needed to create the change you know you need to, to exit your business on your terms, on your timeline.
In other words, even if you’re highly motivated, even if you want something very badly, and even if you know exactly what you need to do to get it; you’ve set up the barriers and you AREN’T going to be able to do it alone.
You can overcome every excuse, every barrier to get to where you want to be at the end of the year. You know where you are and you know where you want to go to make the next 2-5 years your best years yet. Make it happen, and break through every excuse, every justification going through your head so you can get out with the financial freedom for your reinvention.
It’s a big step to decide that you will hire an exit strategist. When you decide you want an exit strategist on your team, you want to hire someone who will help maximize the value of your business and prepare your business for sale or succession. Here are ten fundamentals to qualifying your ideal exit strategist.
- Hire someone who has done what you set out to do (e.g., launch a new product line, bring in $10M new revenue, streamline production to eliminate all late and lost jobs) to maximize the value of your business.
- Work with an advisor who has built businesses, has taken leadership, ownership, and accountability to get things done; hired the team and has risked everything themselves.
- Work with an advisor who teaches you more than one way to get things done, so you can customize the learning to you, your team and your company.
- Work with a mentor who will sit with you to collaborate, rather than a consultant who keeps himself or herself apart. You need someone so engaged in your company and committed to your goals they are always thinking of better solutions for you.
- Work with an authority, someone who gives you ideas one-on-one to run your business more effectively. Work with an authority who also offers training programs you can provide to your entire team to increase company valuation.
- Work with an advisor who is a peer, who teaches you at your level. You want a mentor who understands your size business, your industry, your challenges, who recognizes and values your objectives.
- Decide if you want an expert in marketing/sales/service/HR/finances to solve a specific problem in one area; or if you want a mentor who will help you oversee the entire operation to institute and/or refine business fundamentals.
- Decide if you want to give away your core value to an outsider to get a task done; or if you want guidance and direction from a virtual partner who will help you integrate systems and strategies to take your whole company to the next level so you can achieve the financial success you know is possible.
- Decide if you want to hire a trainer to get you started in a specific skill set; or if you want to hire a mentor who will stick with you to achieve very specific results, in this case an exit on your terms, on your timeline.
- Do you need information that a one-time consultant will produce? Or do you need the ongoing insight, experience and expertise of an exit authority to turn information into knowledge you can integrate into your business, adding value every day?
Your exit advisor is central to your successful sale, scale or succession plan.These fundamental qualifications are essential.
Most owners and entrepreneurs never get to liquidate the assets in their business. It’s true. Here’s why:
- 95% do not plan how or when they’ll get out. They postpone, procrastinate, avoid and deny the need to plan their exit. We’ll get into more statistics later.
- Without a contingency plan, the family often cannot pick up the pieces and keep the business viable.
- Without a succession plan – a buyer can’t see the value in the business without you.
- With all the effort that went into starting and building the business, there was no forethought on how to get out, how to get their wealth out, how to transition to their reinvention.
- Even with a team of expert advisors, the owner has never had a joint discussion with all of them to develop an integrated selling strategy.
When it comes to your exit essentials, let me tell you the questions I would ask and the questions I doubt if you would think you need to ask that you should….
In my whitepaper: Don’t Murder Your Business, I raised awareness of the four key flaws that challenge all CEOs. I also identified three broad areas of blinders that CEOS/owners/leaders put on themselves, often without recognizing them. I won’t repeat them here, but you can get a copy of this whitepaper to the right of this article.
However, it is essential for you to recognize your own excuses that prevent you from doing what you need to do now to get what you want when you exit.
Not taking action is can be as restricting as settling into habits you can’t break.
Inaction can become a general habit that causes you to:
- Leave unfinished projects lying around your office
- Do meaningless busy-work instead of important money-making projects
- Wait until the last minute (or even later) to file your taxes
- Sometimes pay bills late
- Show up for important meetings after the program starts
- Make a to-do list, and then ignore it
- Intend to make a budget and a marketing plan for the year and never get around to it
- Set annual and long-term goals that would prepare the business for your exit, and never use them in operational decision-making
The question isn’t what to do. You already know that. It’s actually doing it that’s the problem.
If you have any questions relating to exiting your business, please email me. I’d be happy to assist in whatever way I can.
“You will never make as much money
running a business as selling a business!”
T. Harv Eker
You’re a business owner. Suppose you were a prospective buyer. Would you buy your business? If you were ever going to buy a business, would you want that business to be dependent on one person, or for one person to be the key to every client, every contract and all the financials? What if that one key person were the owner who is preparing to sell the business and get out? Does that make the business more or less attractive to you as an investment opportunity? I doubt it.
Instead, buyers want to know what they are buying. Buyers are looking for three things: current profits, proof or projections that those profits will continue, as well as potential growth in the foreseeable future.
They want to buy a solid, proven systematized money-making machine that consistently produces income and is self-sustaining without lots of change, supervision, or risk.
Whether you verbalize it to anyone or not, every business owner launches his or her business with the intention at some point to be able to cash out.
No one goes into business to go broke. No one goes into business to be able to pay more taxes. The purpose of a business is to make money.
So when is an entrepreneur supposed to make money (or make back everything you’ve invested in building your business)?
The best way to maximize the money you make from the business is to build it as quickly as possible to the point where it is saleable to your ideal buyer. I know, you don’t hear this from your banker, advisors or in any course on starting or building your business.
To make the most money when you sell, plan your exit from the outset. That means make every strategic decision to grow the business with your future ideal buyer in mind. You want to systematize your business to make it buyer ready and buyer attractive on your timeline.
Think about what your buyer wants when they are ready to buy your business.
Design and build out your business to keep clients engaged with your brand, your team and the company, rather than keeping them tied to your personally. That way you will build the value in the business itself, independent of your daily presence.
When you grow and build out your business with your buyer in mind, you will gain greater leverage when negotiating the sale to your ideal buyer.