By Paul Limb, ActionCOACH Bolton
In over 30 years of supporting and nurturing businesses, there are only ever two questions I ask business owners when they first approach me to plan a successful exit strategy for them from their business and they are:
Is your business ready for you to exit? And, are you ready to exit your business?
It surprises me just how many people make knee jerk reactions to situations and circumstances but if you are not ready to exit or if your business is not ready for you to exit then you actually need to take stock and refocus. Over the years I have become quite tuned in to trigger factors that aren’t necessarily right for either party and I hope this goes some way to supporting those currently considering their future to concentrate on what they need to do and to plan ahead for a happy and lucrative exit.
Are you Ready To Exit your Business?
Let’s assume for now that your business is ready for you to exit and analyse the second question of ‘Are you ready to exit?’ in more depth.
In most cases, there are a combination of factors that are either pushing you away from your business or pulling you towards doing something else and it is important to recognise those and to have a balance of both push and pull factors.
Push factors are the legitimate reasons to want to exit from your business such as a health issue, boredom or the fact that too much of your wealth is tied up in the business. Pull factors are those real reasons for leaving – they are your why and what you will do with yourself should you leave such as travelling the world, starting a new business, spending more time with loved ones or doing some charity work instead. Whatever your push and pull is, it is imperative they balance each other out as the happiest of business exits are when there are just as many achievable pull factors as there are push factors.
How will you exit your business?
Once you have defined your push and pull, you need to give careful consideration to how you will exit. With so many options on the table, if you align your exit type with your reason for leaving, you are more likely to succeed with a result that is right for you. Options include selling outright, re-capitalisation, liquidation, appointing a CEO to take over the day to day running of your business, transfer to family or even consider a management buyout.
For example, if your reason to exit is that you are risk averse, then look at re-capitalization. If you reason to exit is due to health, then options could include liquidation, selling out-right, transfer to family or a management buyout.
Whatever the reason to exit, there is no one size fits all solution to selling or exiting a business and it is imperative to explore all the options on the table and with the right advisors to guide you.
Will the numbers stack up for me to exit the business?
I will dispel the myth now that an investor will swoop in, simply pay you a fortune and you will ride off into the sunset to travel the world without ever looking back. The reality is, that just won’t happen!
You need to work out your numbers and you need to do that realistically and not with rose tinted glasses on! The ultimate judge of your company’s value is the market itself and there will be peaks and troughs in the market too. You need to bear this in mind to calculate what your business might be worth to a third party but you also need to calculate what your business is worth to you. When they are aligned, or as aligned as they can be, then that is the time to consider an exit.
The Exit Matrix
Most exits are far more gradual than that and whether you like it or not, it will require your continued involvement after the sale. To help with this conundrum and to steer you to towards the best sale strategy for you and your reality, you need to be clear on the maximum amount of both time and money you’re willing to commit to after the transaction.
There will be a lot of goodwill and reputation you have instilled in your business and that is because you have been involved daily; the purchaser needs to be sure that the goodwill and therefore sales will still be there long after you have left the business.
The more you are willing to participate in the ongoing running operation of your business, whatever the sector in which you operate, the more you stand to gain financially from the sale of the business. Whether that be as a retained consultant or shareholder or you may even be asked to enter a more complicated arrangement such as an ‘earn out’ or ‘vendor take back’ deal where the onus is on ensuring the ongoing success of the business financially to instill confidence in the complete purchase of the business and ultimately, your final exit too.
Some people feel the latter two options are a ‘trapping’ as they have had it in their head for so long that they will be able to do a deal and walk away with the sale price so it is important to explore and even factor in these solutions many years before you actually plan on leaving. Then they are less of a ‘trapping’ and set you achievable, realistic and tangible goals for both a successful and more financially beneficial exit.
Again, at this point of working with business owners, I ask them two questions – How important is it that you maximise the cash proceeds from a sale and secondly, how long are you willing to stay on post the sale? I can utilize tools to share and a matrix to give careful consideration to what is the best route depending on the answers to those two questions.
No one point on that matrix is better or worse than the other. No one point on that matrix is the right or wrong answer. However, every point on that matrix depends on the outcomes of those questions. If you need higher cash returns now and will have less time to commit to staying on as one of your ‘pulls’ was to set up a charitable foundation then you would be better looking at selling outright to a strategic buyer.
On the other end of the scale, you may have added a management buyout or transfer to the next generation of your family to your business plan already. You’ve known what you want to do and by when and have been actively working towards that for many years. Clearly defined steps and goals and financial reward and return for each party.
Knowing when the time is right – take heed of the best advice
Did you know that 75% of owners regret the decision to sell their business one year after they exit and just 5% of owners are happy with their net proceeds from selling? Don’t be that statistic and take heed of advice!
At ActionCOACH Bolton we will look at the four key drivers of an exit without regret – Future vision, personal detachment, structuring flexibility and team involvement and together we will evaluate the options for your future and for a successful and most lucrative exit strategy to suit you and your needs.
Paul has over thirty years’ experience in sales and marketing, team management and commercial leadership positions working with and for public and private sector organisations from small family-owned companies to Fortune 500 organisations.