Ep #093: 7 Essential Questions to Answer Before Exiting Your Business

7 Critical Questions to Answer Before Exiting Your Business

Welcome back, everyone! Today, we’re diving into a crucial topic for any business owner looking to exit within the next five years: the seven critical questions you must answer to successfully transition out of your business. Whether you're considering an exit soon or planning for the future, these questions will help position you for success.

When Do You Want to Exit?

Knowing when you want to exit is fundamental. It defines how much time you have to plan. Instead of vague timelines like "in the next ten years," identify a specific age range, such as "not before 55 and not after 60." This clarity prevents procrastination and helps create and implement a realistic exit strategy.

What is Your Most Likely Exit Strategy?

There are four primary exit strategies:

Passing to Family
Selling to Insiders
Selling to Outsiders
Liquidation

"Working until you die at your desk" is not a strategy! Use the process of elimination to choose the best fit for your situation. Ensure your business growth strategy aligns with your exit strategy. For instance, transitioning your business to your children requires a different approach than selling to a strategic buyer.

How Much Do You Need from the Business to Achieve Financial Freedom?

Instead of focusing solely on maximizing the sale price, determine your financial freedom number. This is the amount you need to be financially independent. The lower your financial freedom number, the less reliant you are on the business, offering greater flexibility in your exit.

Where Will the Money Come From?

Understanding the source of your post-exit funds is crucial. How much are you saving and investing outside of the business? The more you save independently, the less dependent you’ll be on the business for your retirement, allowing for more personal wealth creation.

What Risks Do You Face Before an Exit?

Identify potential risks that could derail your exit strategy, such as losing a key employee, health issues, or problems with co-owners. Effective risk management is essential. The tactics used to build your business might not be the same ones needed to protect it as you exit. Make sure your strategy isn't vulnerable to unplanned risks.

What Will You Do After the Exit?

Life after business is about more than finances. Plan for how you’ll spend your time, energy, and talents once you leave your business. A fulfilling post-exit life is key to a successful transition. Know in advance what will make your next chapter just as rewarding as leading your business.

Who is on Your Exit Planning Team?

A solid exit plan involves tax, legal, financial, family, business, and personal considerations. You need a team of advisors who can collaborate to create and implement your plan. Identify an experienced team early, select a quarterback to drive the process, and ensure regular meetings to keep everyone aligned.

Summary

Here are the seven critical questions again:

When do you want to exit?
What is your most likely exit strategy?
How much do you need from the business to achieve financial freedom?
Where will it come from?
What risks do you face before an exit?
What will you do in life after the exit?
Who is on your exit planning team?