When I hear a business owner say, “Exit Planning, I’m not ready for that,” I get puzzled. I’m not sure that they understand I’m talking about the planning that it takes to exit when you want, so you can get the most value from your business—not the exit itself. It doesn’t matter when you want to retire; you need to be ready. If you want to work until you’re 80 that’s great, but you need to be prepared to exit if you can’t work that long, or life happens. You need to have options.
I am a fan of Steven Covey’s book Seven Habits of Highly Effective People, and as I thought of my own retirement from my business I reflected on his habit “Begin with the end in mind” and began to think, “What does life look like for me, apart from owning my business?” Studies show that four out of every five businesses that come to market don’t sell. I didn’t want to be one of the four, so I began to think of ways I could add value to my business. I began to plan my exit. I was in my early fifties.
A good exit plan may take up to five years to complete, so if you start today you’ll have plenty of time and you won’t be rushed. You can work on your business at a pace that works best for you. Exit Planning is just good business planning.
Here are four things you should do to start to plan your exit, no matter when it is.
First, talk with your wealth manager or financial services provider, and get them to prepare a “needs analysis.” This analysis will give you an idea of how much money you’ll need in your retirement to live the lifestyle you desire, for the rest of your life, and what assets you have available to reach these goals.
I am a CPA, so this part was easy for me. I prepared my own Excel spreadsheet that showed how much money I’d have available at age 100. Over the years, as my situation changes, I have updated it often. Plans change, but I want to have options.
Once you know how much money you’ll need to live the rest of your life, you should take some time to determine what life looks like outside of being a business owner. I tell clients who talk of retirement, whether they are business owners or not, “You get to stop doing what you have to do and start doing what you want to do.” What do you want to do? What gives you passion? What brings you joy? Take some time to think through that; it’s important. If who you are is so tightly wound to what you do as a business owner, you will have a hard time letting go and may hold on longer than you are passionate about what you’re doing. This will surely decrease the value of your business in a future sale. You don’t have to decide this today, but you should begin to think about it.
I have a very good idea of what my life looks like, post business ownership, but I have no idea when I am going to retire; I’ll work until it stops being fun for me. I am not yet of retirement age, but I’m not going to wait until I am ready to retire and have no other options. Planning gives me options. Plans are fluid and can change. Not planning may lock me into some unfavorable results and that’s not acceptable to me.
Third, have a business valuation completed by a certified business valuation analyst (CBVA). What I am talking about here is a preliminary valuation, for the sole purpose of giving you an idea of the range your business can be sold for. This is not a high-priced, formal valuation that needs to be done for the IRS or the courts. This is simply to get you a number and does not need to have a formal, long report attached. It will be much cheaper than a formal valuation.
This part was also easy for me. I am a CBVA, so I did my own business valuation to determine the preliminary amount my business could be sold for. I have prepared many such valuations over the years, for myself and others.
The single biggest thing that keeps businesses from selling in the open market is the fact that owners have an unrealistic idea of the value of their businesses because they get the information from unreliable sources. I have been doing business valuations since 2003, so I have had many of these conversations. Not only am I a CVA, but I also have a license to buy and sell businesses, so I know what a “market valuation” is. Most business owners have up to 90% of their assets tied up in their businesses so this business valuation amount is very important. A wrong value for 90% of what you own can have some drastic consequences for your overall life plan. The price you’ll pay to get the valuation number correct is far less than the risk you’ll take in getting it wrong.
Fourth, take the free Exit Map Assessment on the exit strategies section of my website. Now that you know how much money you’ll need to retire, how much will come from the sale of your business, and how much will come from your other assets, you’ll know if you have enough to retire in the lifestyle you desire or whether you’ll have to adjust your plans? Since you have taken some time to begin to think about getting yourself ready to retire, the last remaining thing to determine is, “Is your business ready to be sold, for the highest value possible?” A business valuation will tell you what your business is worth today. A properly executed Exit Plan will show you how much your business can be worth and prepare you and your business to obtain that value.
When I became aware of the Exit Map assessment, I took it for myself and for my business. I have worked through some of the action plans in the past and am working through some as we speak. I believe in it so much that I put it on my website for other owners and will help you grow the value of your business, so you can get the most value from your business at the time of your exit.
If you take 20 minutes to fill out the 22 questions on the assessment you can get an idea of the things that you do well and the things that you don’t do well. You’ll also know which things you can do that will add value to your business going forward. The assessment will tell you the urgency and difficulty of the things you need to improve.
I can help you determine which actions to take and in what order during the debriefing process. Don’t wait until you are ready to exit to start planning. Start today. Contact me and I’ll be glad to help. You only get one chance to exit correctly, so this is too important not to get right. Your lifestyle depends on it.