Test Your Assumptions About Exit Options

Five years ago we met with the owner of a successful business who told us he wanted to exit in the next few years. When asked if he knew who he wanted to sell the business to, he responded: “I guess I will sell to a third-party buyer”. He didn’t at all seem excited about that, so with further questioning, we learned that he was moving ahead under the assumption that a sale to a third-party was his only option. We also discovered that his real desire was to sell to a key employee who had been instrumental in building the business, and a son working in the business. Also, he had already spoken to a strategic buyer who was interested in buying his business and expanding into the area.

In 2019 with our help he successfully sold his business to the key employee and his son. The moral of this story is to test your assumptions pertaining to how you will eventually exit your business. And, it’s best to have an expert test those assumptions…because you don’t know what you don’t know, and you may not even recognize where you’re making assumptions. Our client assumed he would not be able to sell his business to whom he wanted to, and had actually started down a path that he really didn’t want to travel down. With the right help, his assumptions were identified and tested, and in the end, he was able to do what he really wanted to do.

Identifying and then testing assumptions is essential for a successful exit. Our client realized what he really wanted to happen because he took the first step in seeking expert assistance. You can get started today with our FREE Exit Readiness Assessment.

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What Exit Route Should You Choose?

There are not many absolutes in owning a business, but there is one thing that is absolutely certain….all business owners will stop being business owners at some point…100%. Along with death or permanent disability, the following are routes for leaving your business:

1. Sale to one or more key employees.

2. Sale to one or more co-owners.

3. Sale or transfer to children or family members.

4. Sale to an Employee Stock Ownership Plan (ESOP)

5. Sale to a third party (full or partial).

6. Become an absentee owner.

7. Engage in an IPO.

8. Liquidate for asset value and close the doors.

As you would expect, there are advantages and disadvantages to each of these exit routes, and other than liquidation, each can require much planning and time to execute in a way that will accomplish all of your values-based as well as financial goals. Certain exit routes will lend toward a higher financial payout, while others afford more control for values-based goals like sustaining culture and care for employees.

We believe that it’s imperative for business owners to understand all available exit routes and the particular characteristics of each, and how they align or misalign with their goals for the future.

Begin increasing your knowledge today with our Exit Routes eBook. You can download it for FREE on our ExitReadiness® site under PRODUCTS.

"I'm Not Ready to Sell My Business and Retire..."

In my past life, when working in the financial services/wealth management industry, we helped individuals and families create financial plans for their goals such as college education or retirement.  It was very unusual to have a conversation with a client or prospective client who did not already understand that the sooner they began planning the better chance they would have in achieving their goals. They seemed to "get it" that planning, building, and saving for their goal(s) would take time and they could not simply begin planning when suddenly they were ready to send the kids to school or retire from their job.  For example, when encouraging someone to get started saving for retirement as soon as possible, we did not often hear, "I'm not ready to retire yet."

Interestingly, it is not unusual to have a business owner respond to inquiries about their exit and legacy with, "I'm not ready to sell my business", or, "I'm not ready to leave my business and retire".  The inference being, that planning isn't needed until they are actually ready to leave the business (Or, maybe we simply did a poor job describing what we do...as we do not sell businesses).  As this conversation continues, it becomes clear this owner is assuming they will be able to sell their business when they want and for the money they want, and that any planning involved really only amounts to some legal stuff regarding the sales transaction.  These are very faulty assumptions.

For most small business owners, the future business value will play a key role in their retirement planning, financial security for their family, and their desired legacy.  Like an investment portfolio of stocks, bonds, and mutual funds, there are specific things that can be done to maximize value and minimize risk but each takes time (often years) and financial resources that need to be budgeted and planned for.  But because a small privately-held business is typically not as liquid as financial assets in an investment portfolio, long-term planning can be even more imperative. Particularly, if your desire is to sell to insiders or children.

Is your business the largest asset in your investment portfolio?  Do you know what you will need your business to be worth in the future, what it's really worth now, and a plan to increase its value?  Do you have a long-term planning perspective on what might possibly be the largest and most impactful financial transaction of your life?

Don't wait until you're "ready to retire" to begin planning your business exit or you won't be ready.  Instead, have the same long-term perspective in planning your exit as you do in making contributions to your 401k/retirement plans.  

Invest 15 minutes and take our FREE Exit Readiness Assessment. We do not request any confidential information.