Most business owners have a sizable portion (if not all) of their pension tied up in their businesses. Yet they have no clear idea or plan for how they are going to transfer the value from their business to their own pockets. Or discover what’s next in their life’s journey.
In short they don’t know how to get exit ready.
Have you given thought to the kind of retirement that’s been driving all the hard work? The kind of life you previously didn’t have the money for. The kind of life you didn’t have time for. The kind of life that you’ve been dreaming of when you were working 18-hour days and worrying about cash flow, staff and customers?
You’ve put the work in!
So how do you protect the value so far? Then when you are ready finally get the money in your own pocket so you can the live the life you’ve worked so hard for then you are in the right place.
I’ve personally been through many exits and acquisitions, including liquidation – so I’ve exited in the most painful way possible. I’ve learned a lot of lessons including that you don’t get to exit your business on your terms unless you have it planned.
Many business owners have the common misconception that to sell a business you call the business broker, who finds you are buyer and 6 months later you can retire on the cash you’ve got in the bank. You start planning your retirement – the once in a lifetime 120-day cruise, the Lambo or Ferrari.
Why Get EXIT READY?
Most people go through one business sale in their lifetime.
The process is hard on many levels. Physically emotionally and mentally. If you do find a buyer, it’s not just a case of handing over the keys and getting the cash. Many buyers want golden handcuffs so they can be sure of the value before you disappear into the sunset. You may be asked to hold some of the money back and stick around while having no control of the business you build from scratch. Without planning and preparation you might be leaving money on the table.
80% of all businesses “put up for sale” never find a buyer leaving the business owner feeling that they’ve worked most of their adult lives for nothing. It reckoned over 50 % of business owners exit because of unplanned events that mean they aren’t in control of the way they leave their business – and neither is their family or business partner or employees or any of the stakeholders to that business. There is often a mess left behind, particularly on death, when this happens and the people who have to pick up the pieces are generally the least equipped to do it.
In family businesses, where the plan is to pass the business through generations, only 4% make it to the 4th generation. Just think about that for a minute. You spend your whole life building a legacy yet by the time your grandchildren come of age there is only a 1 in 25 chance it’s still there.
All this relates to business that have done the hardest work of all in surviving the first 5 years. Survival rates for businesses is scary – less than half make it to 5 years and only 1 in 10 gets to celebrate its 10th birthday
Are you in danger of letting your business fade away with nothing but a lifetime of hard work to show for it?
Are you currently stuck in the “desert” where you don’t know what to do but you know something has to change? Wouldn’t it be better to consciously prepare and protect your business before thinking about that final exit?
Business owners know that work on the profitability of their business generates cash – pays wages and bills. Its immediate. But the value of your business to a buyer is driven by more than that. Whilst profit is the first indicator, they soon start doing the due diligence process and that’s a big deep dive into your organisation, uncovering risk factors, uncertainty and possibly getting them reassessing their offer price.
Profits are invariably adjusted for add backs – this is where the buyer will assess the profitability on the basis of market rates for the work that you as a business owner are doing for the minimum tax efficient wages. They’ll look at who it takes to run the business and how much risk they are taking.
What’s Your Business Worth?
The multiple is often misunderstood and can take on mythical proportions. One business owner we’ve worked with in the past wanted a multiple of 20, when the expectation of buyers was 5 or 6. With no basis for that multiple, it was just the number that worked for his aspirations and profits. The multiple in listed companies is a defined formula based on something called a Price Earnings Ratio. In unlisted private companies it’s not quite so easy to calculate because the numbers aren’t visible to a buyer. The buyer is looking at other factors:
- Your systems
- Reliance on the business owner/single key people
- Organisation structure
- Consistency reliability and repeatability of service / product
And a whole raft of other factors. The buyer is looking for certainty.
Passion got you this far – so where from here?
What are the main challenges?
If it was easy and straight forward you’d be doing it already – and so would everyone else. Sometimes you know what outcomes you want but you just don’t know how. Maybe you don’t know the right questions to ask to get the answers and direction you are looking for – put simply you don’t know where to start.
Being “in” your business can often mean you don’t take the time to step back and see the big picture – the day-to-day crowds in on you and takes away any capacity for thinking. After all, “it’s your baby” no one else cares about your business like you do. It makes it a little harder to be truly objective about your role in it.
What we see typically in businesses is a 3-year plan – WHY? Well because this is far enough away that I don’t have to do anything today. What happens here is when the question “I don’t know where to start?” comes up – you can say “Ah in 3 years”. But if every succession or exit plan is always 3 years in the future when are you going to retire? And what happens if the unexpected happens in the meantime? Recently I spoke to one business owner that was 18 years into his 3 year plan.
First Steps to Get Exit Ready
In the meantime, getting started is often the hardest step to take, and that why we focus on one step at a time – figuring out where your business is right now AND what YOU want out of it. Your business is here to service YOUR needs not the other way round. The VALUE REPORT is the result of a comprehensive fact find in your business.
We dig deep and really get under the skin of your business with you and identify the key strengths and weaknesses. This gives you (and us) great insight into the current state of your business and the opportunities for improvement both in profitability and overall value. AND it gives you the PERFECT Implementation Plan for achieving what needs to be done to get your business value to the best it can be.
On the journey you will need other experts involved. We identify what they would be doing for you and the questions you need to ask to get the best out of them. No more wasted fees because of lack of clarity or understanding what’s needed – this is laser focused on YOU getting what you want out of your business and getting your business serving YOUR needs. Imagine you’re running your business and not the other way round?
Of course, this needs a mindset change – it’s not just the business that needs to get exit ready – you do too. It’s often the hardest part – letting go and getting out of your own way.
Jo Fairley – Green and Blacks – cried herself to sleep when she lost control of her company having sold it for £30m until her husband whispered to her in the night “you can have control, or you can have the money” – she stopped crying.
Where to Start
The other big challenge is overcoming inertia – to just start. The sooner you do the sooner you lock in the value of your company. How much time do you spend in the business? and where do you spend it? Usually, business owners spend their time in 4 “places”
- Operations (the today) – where your salaried or employed staff also spend their time
- Support (back office) – this is overheads / cost
- Strategy (tomorrow) – this is where you are building the equity in your business and sadly is where many business owners spend the least amount of their time
- Culture (leadership) – this covers all the above and is an essential pillar of really high performing companies
One question is “what can you delegate for immediate impact on you, your money, your time and your energy”? You only have 3 roles in your business:
- Generate revenue
- Improve effectiveness (leadership – continuous improvement – quality)
- Stay legal
What Are Your Options?
What can you unload to feel lighter and have more time space energy and capacity to think clearly about your future? Because where you will be in 3, 5 10 years’ time will be directly related to where you spend your time, energy and thinking right now and for the foreseeable future. Will your future still look like a Doer-Upper? Or will it be a simple life, with great views or your own palace on a private lake? Whatever your dreams of the future – once you know what it is and can define it, you can start making your business work towards that aim.
If you thought that selling your business or closing it down were the only options you had, then let’s talk. There are so many other options available to you. For example, selling or transferring your business slowly over a period of time. Ease into your future at your own pace with:
- Transfer of ownership between family members or friends
- Sale to Other Shareholders
- Internal Sale or Management Buyout
- Employee Share Ownership Plans
Or having worked on the weaknesses in your business you might be ready for another drive for growth as well as increase the existing value – go for a double whammy. This doesn’t stop you easing out, but it does focus on growing the business value at the same time
- Partial Sale.
- Trade Sale
- Strategic Sale
- Sale to Listed Company
- Private Equity/Venture Capital
- IPO (listing)
Avoid fading away by passively pushing your future planning into the next 3 years – that may never come. It all comes back to the questions (again) So how do you get started? If you don’t do anything else, there is one thing you can do TODAY that will, if you act on it, have an immediate effect on YOU and your business and that is look at what you can delegate to enable you to focus on your 3 primary roles of generating revenue, becoming more effective and staying legal.
So if you are thinking about getting Exit Ready, try the 3 minute, 15 question quiz that lets you know where you are right now. Then you’ll get a short report showing what you need to work on as a priority. Here’s the link
Are you ready to sell? Click here to contact Christine by email alternatively you can book a call with the Business Mentor of the Year 2020, author and speaker. Who helps business founders get their businesses exit ready so they can enjoy a happier, richer future. She saves them THOUSANDS and increases the value of their businesses by MILLIONS.