Preparing for what’s next
There are a multitude of websites and sources for preparing financially for retirement when you decide to leave your business. And if you’ve just sold your business, you’ve hopefully got the funds you need. How did you know what you needed?
Did you sell with no onward commitments to the business? If you are tied into an earn-out as part of your company sale, then you’ll have one of two 2 situations.
1. You have control over the factors included in the earn-out and you are more likely to earn whatever rewards are associated.
2. You are not in the position to control results and you risk the earn-out value.
It is advisable to understand the full implication of any earn-out responsibilities, authority, and control. Earn-outs are a common feature of M&A deals because it allows buyers to reduce the risk to themselves of reliance on a seller’s forecasts of future growth and results. It holds the seller to account.
As the seller, it’s important to set the criteria for the earn-out in detail and in writing, including:
- What financial and non-financial goals are conditional for the final pay-out,
- How long the agreement lasts for
- How the final numbers and activities are verified.
Non-financial goals can be harder to quantify, and it is important to detail how they are measured and what control you have over them.
Earn-outs are more challenging where you have no influence over the outcomes. This happens when the seller is either completely outside the business for the earn-out period or in a role that doesn’t have control or authority over the metrics. The main mistake sellers make is not having verifying criteria for whether goals are being achieved or not.
If you have not had experience in buying and selling businesses, you may not be aware of the intricacies of an earn-out, so getting expert advice well before the actual transaction is essential to protect any deferred payments.
Having the money solves one problem when you leave your business, but the other is “what are you going to do with your time?” Most people struggle with having lots of free time and no clear purpose. Doing something meaningful adds to life satisfaction significantly.
Many business owners have their identity tied to their business and that means the work they do has meaning. When you start think it’s time leave your business, you also need to start planning what you are going to do with your time. When you’ve worked very hard, putting in long hours and having laser focus on your responsibilities, you tend not to have had made time for hobbies or other interests. So you might be considering dusting off the golf clubs or getting your motorbike out of the garage – but after a while this might not provide a replacement for having a purpose in your day.
When you become a retiree, regardless of your age, you can feel like you lose your identity. But you are not what you do and can still contribute to meaningful activities. Keeping both physically and mentally active are essential parts of a long fulfilling life.
“Only stepping out of old ruts will bring new insights.”
Andy Grove
Are you ready to leave your business (no matter when it happens)? 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.
