Here are some questions to ask yourself to ensure you’re leaving your company for the right reasons and are taking the right path forward.
Exiting your business involves many considerations, both personal and professional. When something new is on the horizon, it’s easy to get caught up in the excitement of your next adventure, especially if you have an entrepreneurial spirit.
However, you’ll be much better off in the long run if you take your time and start planning early, giving ample consideration to every aspect of the business you’re leaving behind as well as your professional and personal goals moving forward.
Before you make your mind up, and before you begin creating an exit plan, ask yourself these questions, and follow these best practices, to get a better grasp on your motives as well as your likelihood for a successful transition.
Personal push and pull factors
Personal considerations are often at top of mind when exiting a business. It may help to make a list when you’re thinking through your motivations, so you can get to the bottom of what’s driving you. There are both push factors and pull factors that may be leading you to the change.
Push factors focus more on reasons why you want to get away from the business. They could be:
Your stress level is too high
You’re no longer excited about the business
Pull factors focus more on things luring you away, and could include:
Starting a new business or exciting project
Spending more time with family
Time to travel or pursue a new interest
When you’re considering an exit strategy, the ideal scenario is that there are more pull factors than push factors.
Exit Strategy: What shape is your business in?
It’s crucial to evaluate the state of your business before you exit, so you can create a successful plan for operations once you’re gone. Key considerations to assess the state of your business are:
Who will run the business when you leave? Is there a natural choice?
What’s the most valuable part of the business, and is it likely to continue to be valuable?
Is there a reliable revenue stream and cash flow?
Where will you fit into the business moving forward? Will you still be a shareholder? A consultant?
Conducting a business valuation is important when you’re constructing an exit plan. And while the actual market worth of your company is important, it’s also crucial to consider what it is worth to you, personally, not just to the overall market. Weigh these two factors when figuring out details like the hours you’ve put into your business thus far, what you would hope to get from a sale, etc.
Also consider your industry, and research any changes coming up that could affect business growth. Markets are constantly changing, and depending what industry you’re in, this fact alone can make or break a business without any one mistake you made.
These questions will determine the type of exit to take, covered in the next section.
Choosing the right type of exit
Once you’ve considered both your personal motives and the state of your business, it’s time to assess the type of exit that’s right for your situation. Here’s a look at your options and the factors that determine which is the best fit.
If you sell outright, you’re selling all of your business to a third party, and you essentially walk away. But remember that this strategy does require that your business is valuable as it stands and is able to be run without you.
Are you still passionate about your business? If so, this may be the right option for you. If you go the recapitalization route, you would sell part of your equity to a private equity group, and you can still continue running the business. A big benefit of recapitalization is that it would allow you to diversify your wealth.
If you want to walk away from the business, but you can’t sell it because it’s no longer profitable or it’s having some major issues, liquidation may be the best option. This way you can sell any hard assets, and you won’t have to worry about the process of transferring control of the business.
Managing every aspect of a business is stressful and time-consuming, and business owners often experience burnout after a given period of time. If you’re looking to get away from daily operations management of your business, consider hiring someone to take that over for you. This person, whether a chief operating officer (COO) or a chief executive officer (CEO), can take over operations, leaving you plenty of room to focus on growing the business and making the major strategic decisions. Depending on the type of professional you hire, you may or may not keep your salary or maintain your level of equity.
Transferring to a family member
If you have a family member who is interested in and qualified to run the business, this could be an ideal transition. You may have to oversee the transition for several years, and the business must be profitable and healthy.
If you have a pretty stable, profitable company, another option is for senior management to buy the business by taking on debt.
There’s usually not one easy way to exit a business. But if you give these questions and considerations enough time well in advance and are smart about moving forward, you can leave behind a successful company and legacy while pursuing whatever’s next for you.
The Goldhill Group, founded by business and management consultant Jonathan Goldhill, is committed to empowering entrepreneurial leaders to find both freedom and success. We offer executive and leadership team coaching, as well as strategic planning facilitation services, and we’ve helped hundreds of companies increase profits, maximize their teams, and grow cash flow. Get in touch today to learn more about our business coaching services.