Your Exit Checklist: 5 Steps to a Lucrative Exit from Your Business
If you’re thinking about exiting your business in the next five years, let me give you five steps to a lucrative exit from your business.
Step 1: Ask yourself two very important questions:
Is your business ready to sell?
Are you personally ready to exit?
Let’s dive into both questions because having good answers to each will help you stick with it as you go through the exit planning process.
Diving Into Question 1: Is your business ready to sell?
Have you done all you can to maximize the value of your business?
Use this simple checklist to find out.
Answer “Yes” or “No” to each of the following questions to get a pulse on your business’ readiness to sell.
Do you have a stable manager or management team in place who can run the business in your absence? If it’s a family member(s), do they have the capability to grow and/or manage the business.
Do you have a reliable, predictable stream of revenue, ideally from recurring customer contracts, that a buyer would find valuable?
Are you free of dependence on any one customer, supplier, or employee? For example, no more than 15% of your sales should come from one customer.
Do you have a business in an industry or market with growth potential?
Are your financials well organized and are you profitable? Or, will a lot of cash be required to operate the business thereby putting a drag on the amount a buyer would be willing to pay?
If you cannot answer YES to most of these questions, there’s work to be done.
And, I have just the solution for you. Click here to book a 15-minute call with me now.
Diving Into Question 2: Are you, personally, ready to sell?
Are you being pushed into selling or do you feel a pull towards something else?
Ideally, you will have more pull factors than push.
Push factors might include: divorce, death, boredom, stress, market has peaked, health or retirement reasons, etc.
Pull factors might be to start a new business, travel, get fit, spend more time with family discover a new hobby, or give back to your community, to name a few.
The Balance Scorecard Exercise:
Try developing a Balance Sheet Scorecard.
Your Scorecard will have a list of what you are excited to do (“pull factors”) on one side, and on the other side a list of what you want to get away from (“push factors”) on the other side.
Again, the goal is to have more pull factors than push.
If the balance looks off to you, ask yourself how you can begin to add more pull factors or remove some of your push factors.
Step 2: Align Your Reason to Sell with Your Exit Options:
Once you’ve gotten clear on why you want to exit, you must decide how you want to exit.
Do you want to sell your business outright or liquidate it in a hurry?
Or, is it viable that you could recapitalize your company to take some ‘money off the table’ or hire a CEO/COO to manage or grow the business while you move into a Chairman or silent partner role?
Perhaps you have children in the business and can transfer it to them.
Or, perhaps you have employees, who have become like family, who can do a management buy-out.
Each of these options should align with your reason for selling.
Step 3: Figure Out Your Number:
At this step, we’ll need to figure out what you need or want vis-à-vis what the business is worth in the market.
In other words, what’s it worth to you and what’s it worth to someone else.
We can start by figuring out your number.
If you’re thinking of retirement, then your thinking might look something like this:
Say you need $100,000 to live comfortably and believe 4% is an almost risk-free return on your money.
Then you’ll need 25 times that amount or $2.5 million after taxes from the sale of your business.
Pretty simple math, if you agree with the assumptions.
Say you need $200,000 to live comfortably and believe 5% is a reasonable rate of return, then you will need 20 times that amount or $4.0 million after taxes.
You get the picture.
Suppose you’re thinking you just want to take your foot off the accelerator. Work less while taking some money off the table…
Your thinking should be different for a scenario like this.
You’ll need to figure out what percentage of your net worth you want tied up in your business and lessen the risk by selling some of your stock ownership (whether that be to a partner, managers, outside investment group, etc…).
If you are bored, tired of putting in all those extra hours or just want to go and do something else, then you might be thinking of recouping your invested time into the business.
You might add up what you think you’ve put into the business in terms of time and recoup any underpayment you made to yourself during that time.
Perhaps that helps you arrive at your number.
All of these scenarios are fine choices. The important piece to take away from this step is that how you arrive at your number becomes much easier once you decide what you're hoping to gain from the sale.
Step 4: Decide the Life You Want Post-Exit:
Before you go off into the sunset, travel around the world or launch your next business…
It’s important to note that you’ll likely need to take on any number of roles immediately after the sale.
You'll also be faced with some key decisions to make.
Don’t forget, there are 7 things you will need to negotiate along with your purchase agreement.
If you’re staying in the business for any period of time after the sale, (perhaps you’re receiving some of the sale price proceeds on an “earn out” basis) you'll need clarity on your:
Role going forward
Salary and short-term bonuses
Long term incentive options
Role if your buyer gets acquired
So, what will your role be going forward?
You may be taking on the role of a lender.
It’s not uncommon that the seller will choose to (or must take back a note from) the buyer.
Commonly called a “seller take back”, you will need to monitor your loan performance as needed to protect your investment.
You may be taking on the role of a consultant.
In exchange for consulting and non-compete agreements, you will be asked to stay on in an advisory capacity.
The term of this could last anywhere from 3 months to 3 years, depending upon a variety of factors.
Therefore, you must consider what you are interested in and what a buyer will require.
You may be taking on the role of a shareholder.
Being a shareholder post-sale has the advantage of potentially getting a “second bite of the apple”.
If your company’s value goes up, then you will benefit from its lift.
But, of course, if it goes down then you are sharing the downward risk too.
Step 5: Pinpoint Your Spot on the Exit Matrix:
Finally, you need to put it all together and figure out where you fit on the Exit Matrix.
Grab a complete copy of the Exit Checklist e-book you can see the trade-off grid between maximizing the cash proceeds of the sale vs. willingness to stay on during a transition.
If you want to scale up or prepare to exit your business, you’ll want to make sure you get the most value from it.
As a growth coach, I have helped many business owners grow or scale up their businesses, and few of them exit.
I like to offer a quick assessment tool that will provide you with an estimated value of your business and what you need to do to make your business more valuable and sell-able in the eyes of
a strategic or financial buyer.
Interested in knowing what your business is worth and learning more the 8 drivers of value in any business? Got 13 minutes? 13 minutes is all it takes to identify how to double your value, double your options and control your future. Get your Value Builder Score™ here.
To complete your value builder analysis, be sure to get an Estimate of Value and a 27-page report on how to increase that value while improving the sell-ability of your business.
Want to schedule a call to see how coaching can help you increase the value of your business?