How Will Selling (Or Not Selling) Your Business Impact Your Lifestyle In The Future?

Our fictional business owner, Baby Boomer Jane Doe, is like most owners in that her business is her largest asset and will play a central role in achieving future financial security, goals, and dreams.  Jane has been in business approximately 25 years and, as a result of the steady stream of business revenue, she has experienced a very comfortable lifestyle that includes two homes, private education for the children, annual vacations, and plenty of discretionary income.  

But now Jane wants to plan for "what's next" as she now has grandchildren in different states she wants to visit regularly and has lost the passion once enjoyed in owning and running the business.  In conversation, Jane says with a level of exasperation, "I'm just ready to leave the business...I'm done".  Jane doesn't have management or children interested in purchasing the business, no longer wants to be an owner and thinks the best exit route would be a third-party sale.  

After engaging an exit planner to lead the design and implementation of her plan to leave, Jane is alarmed and disappointed to learn that her business is worth quite a bit less than what she had estimated and that a significant increase in her investable assets will be required to do all she wants to do post-exit.  Her financial planner assessed that her "plan for life after the business" would have a price tag of at least $4 million, while her business is really worth $1 million (Note: Jane had estimated a $2 million value), she has current investable assets of $1 million, representing an "asset gap" of $2 million.  And again, Jane wants to leave now!

As Jane's exit planner continued to "expose reality" regarding her business readiness for a successful third-party sale, Jane also had to come to grips with the reality of her business not being as sellable as she had assumed.  The planner pointed to a number of "value drivers" that needed strengthening (i.e., EBITDA, capable management team, plan for growth, etc.) to make her business more attractive to either a strategic or financial buyer. 

So, if Jane chooses to sell now and is able to, all indications are that she would not receive a sufficient amount of net proceeds to facilitate her post-exit life plan.  She will either need to begin now to execute a plan to accelerate the value of her business and sell at a later date or significantly reduce her post-exit goals and lifestyle...neither of which are attractive options.  Jane is not feeling at all good about her limitations and lack of control over her current options.  

It is now clear to Jane that it would have been wise years ago to assess both her personal and business readiness and put a plan in place to accelerate the value of the business.  If the business was more sellable and highly valued she would have more options for when and how she exits.

Have you conducted an accurate financial gap analysis including an objective estimate of business value and personal financial plan?  Do you have a plan in place to systematically maximize the value of your largest asset?  Will selling (or not selling) your business affect your future lifestyle goals?  Will it be sellable as more and more baby boomer business owners put their business on the market in the next decade?

Take control of your plan now so that you exit on your own terms and conditions.  Contact us for assistance with any of these critical planning issues.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

"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.