In my early days as a coach I met a guy who was the owner and president of a manufacturing company. The company had been left to him by his father-in-law in the 1960’s and he had changed the product offering and grown the business quite dramatically. He told me that he was 83 years old, hadn’t taken a salary for 4 years and worked 50 hours per week. His wife was in a
care facility and he spent the time he wasn’t at work with her. His son, who was in his early 60’s himself, was the company’s only salesman and rarely left the office to meet customers, choosing to email or call them (unless it was the summer when he played a lot golf and only worked 20 hours a week). I asked the president why he hadn’t already handed over the business to his son.
His answer left me both sad and incredulous. He said that as soon as his son was in charge he
would fire the chief engineer – who had been at the company all his working life – and the
production manager, who was his cousin. I was interested to know if the owner ever intended to
hand over the reins to his son, but he let me know that his son would only get the business when
he himself died, and then “it won’t be my problem anymore”. This guy had made the active
decision not to make an exit plan, he was quite literally going to die with his boots on.
It doesn’t matter where you are in the life cycle of your business you need to have an idea of
what your exit plan will be.
Even if you are in your 30’s and don’t intend to retire for 40 years you should still have a plan
about what happens to the business if you were to “exit” prematurely – you’d be surprised how
many businesses have been left to widows or widowers on the unexpected demise of their
spouse. Is your widow/er prepared to run the business after you’ve gone? If not, what’s going to happen? You can take out insurance policies that specifically cover these events so your spouse
gets the value of the business, but not the actual business.
How far in advance to start thinking about exit?
You should always be prepared for an exit, even if you aren’t actively looking to sell, because
the universal truth is that every business is for sale – at the right price.
So what steps can you be taking now, that will set you up for a future exit?
The first thing is to make sure you do what only you can do. Make sure you delegate as
much authority, and as many tasks as you can. One of the ironies of selling a business is
that the less you’re involved in the day-to-day running of the company the more it’s
likely to be worth. If you are the lynch pin in every decision and operation in the
company, you have effectively made yourself indispensable, which might be great for
your ego, but can kill any deal that involves you wanting to leave after the sale.
You need to “take off your Superman” cape, and let your staff go to other people for
answers. Once you get past that small issue, running your own business will also be a lot
Start to think about what type of exit you might be looking for. Do you want to sell the
business or give it away? Would you sell to a competitor – with all of the potential for
downsizing that might entail – or would you prefer to sell to another “owner/manager”?
Might you want the company to become employee owned (ESOP)? Do you want to
remain involved in the company or to leave it completely? Do you want your children, or
another relative, to take over the company? If so, remember that they should be your
successors not your heirs! Successors build on what has been given to them,
heirs…..well, they just tend to spend it all.
The next piece of advice I’d give you is, don’t over estimate what your business is worth
(particularly if it’s small). The truth is that as the Baby Boomer generation are retiring,
and consequently looking to liquidate their biggest asset (their business) the supply of
businesses for sale is exceeding the demand, and this is driving down multiples.
Unfortunately, most owners believe their business is worth a lot more than buyers do, and
this can cause a fair amount of friction in the sale process if things aren’t handled
sensitively by both sides.
Which brings me to my next point, use professionals to help you sell your business.
Business brokers are selling multiple businesses a year, so not only do they know what
they are doing, they know how to do it so that everyone comes out of the deal happy.
Most brokers will take 10% of the sale price as a commission, but a good one will get
you the best price, from the best buyer in a shorter time. In addition to a broker, you will
definitely want to also engage an attorney who specializes in the buy/sell process for
businesses of your size, and depending on the complexity of the deal you may also want
to engage a tax CPA to help you structure the transaction.
………and finally, don’t underestimate how long it could take to sell your business. If
you start out as a seller and need to market your company (as opposed to being
approached by a potential buyer), your sale process is likely to take at least a year, and
many take longer. Purchaser due diligence, bank appraisals and EPA inspections not only
take time to undertake, but any necessary remediation also costs time and money.
If you haven’t formulated an exit plan and you think the time has come to do so, please give us a
call at (440) 385 6737 for a free one hour consultation where we can discuss your options.