Over the past 5 years, I’ve learned a ton about business growth and exit planning. Here are 10 of my takeaways from working with these owners on their transitions…
You Can't Prepare the Business for Exit Without Preparing Yourself: Business is personal. You can't avoid this fact. And if you think you are going to walk away from that which you have spent years building and not have a little bit of pause, you are in for a shock. And if you think you can go from having your time, relationships, and even identity (to some extent) tied up in the business, and then walk away without a plan for your next chapter, you’re fooling only yourself. Do yourself a favor and take personal planning seriously.
Every Business Buys Itself Out: Rarely can an employee pay you what the business is worth, without the profits from the business. Even with businesses getting taken over by private equity, the buyer has to see something - market niche, intellectual property, workforce, vertical integration – that, when handled properly, will generate a reasonable return on their investment.
It Takes a Village to Sell a Business: I've been amazed at the number of deals that have gone amazingly well, simply by virtue of having the right team in place. On the flip side, I have been underwhelmed and somewhat saddened to see business deals wither and die for lack of a sufficiently organized and capable transition team.
Time Kills Deals: You have to have realistic expectations about a timeline, but also understand that time is not on your side when you are engaging in a business sale. The longer key projects drag on without closure, the more likely your buyer is to walk away. This doesn’t mean you can rush a process. But you have to have a process with a realistic timeline, and you have to stick with it if you want growth or exit at the end.
Your Employees Might Be Great Potential Buyers: One of the most personally fulfilling ways to sell a business can be to sell to employees that you have helped develop and mentor throughout the years. They will likely not be able to pay you as much as other types of transactions, but if you have done your personal financial planning diligently, this might not be a problem. And it may pay emotional and relational dividends long into the future.
It's Wise to Look at all of Your Exit Options (Family and Employees will Thank You!): When you sell a car to your kid, you might still look at the KBB app and see what that car might fetch from a dealer. The same goes for selling your much more valuable business. Even if you choose to transition it to a family member or employee, it's not a bad idea to know what your options are. We had an owner walk down the Employee path for a while only to be interrupted by a very attractive offer from another firm. And his employees ended up finding even better roles in the new company, doing more of what they were already passionate about doing.
Family Business Without Family Communication Breeds Family Strife: One of the worst experiences of my career has been watching a family nearly disintegrate because the business owner did not engage in proactive planning before she passed away. She built a wonderful service business, with two of her 5 kids playing active roles in the company. But when she passed without having prepared the business or the family to transition, lack of clarity turned to confusion, which gave way to anger, and now they are still picking up the pieces. And the saddest part is that all of this was avoidable. Do your family a favor. Over-communicate.
It Might Shock You After Exit Planning to See How Primed You are to Be the Buyer, Not the Seller: One of our clients engaged in this process thinking that they’d be ready to sell in the coming years. They still are looking to sell. But they found opportunities to acquire businesses and increase the value of the family of companies before exit. Now they are looking to exit in a much better position.
Growth and Exit Planning is Not for the Faint of Heart: If you’re going to be asking yourself hard questions about the future of your business – its identity, its employees, the future of your kids in the organization…if there is one – you are going to do some heavy lifting here. Gear up for it. And plan some high quality free days throughout the process. You will need to get out and alone with your loved ones (and your thoughts) to be able to do this well.
Your Businesses Serves Your Life Purpose, it Must Not Define It: Read E-Myth revisited. Read Vivid Vision. Read your Bible. Your business must allow you to do more of what you’ve been created to do, what drives and motivates you. And if your eventual exit allows you to lean into this purpose even more, then you’re in the right place.
Which one hit home for you the most? What lessons have you learned? Let me know.
Thanks!
Any opinions are those of Timothy Weddle and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.
Comments