How do you know if you are ready to transition out of your business? Planning for life after the sale and determining what you would do outside of the business is an essential part to having a successful transition. It can help you protect the value of your business by identifying what drivers are motivating you to sell and what future life vision will get you through the hardest parts of the exit planning process. Planning well in advance for what your next chapter will look like ensures you will exit your business without any regrets. In this episode, Tom will be sharing the most common personal readiness issues all owners should plan ahead for before they embark on transitioning out of their business.
Listen in as Tom explains what the most common personal readiness issues are, how preparing for these well in advance can protect the value of your business and ensure a successful transition. You will learn what the three forms of exit readiness are, the importance of keeping the end in mind very early on in the process and how to get through the hardest parts of the sales process.
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"Welcome back to Business Exit Success everybody. Today we are talking about readiness to exit. And from my perspective as an exit planning advisor, I like to consider three different types of readiness factors that I walk business owners through to determine how ready they really are to make a transition and step away from the business. I’ll briefly mention each of them on this episode, we’ll dig into one of them also on this episode, and in the next two upcoming episodes, I will address the other two."
"So what are these readiness factors?"
"The first one is Personal Readiness which is what we will talk about today, then there is Financial readiness, and lastly, there is Business readiness."
What is exit readiness?
"Now let’s back up real quick because I want to define Exit Readiness. Exit Readiness is not when you make the decision to sell. It’s not one day when you wake up and you say to yourself, you know what I’m done. I’m tired, I want to spend more time with my family and travel, how can I get out of this thing? Just because you’ve made the decision that you would like to transition out and step away, doesn’t mean you and your business are Exit Ready. Being exit ready is a state of fact, not a state of mind. I’ll say that again, Exit Readiness is a state of fact, not state of mind. There’s of course some variability in measurement with this but stick with me and I want to share a personal experience I’ve had multiple times."
"I’ve had many conversations with other experienced M&A advisors - so Mergers & Acquisitions advisors – these people buy and sell businesses all day every day, that’s all they do. I was at an event just towards the end of this last year, and I was speaking with another M&A advisor and asked how his year went. And what stuck out to me, was that he had to turn away over 500 businesses because they were not in good enough shape to put on the market. 500 businesses. So these 500+ owners were in their own state of mind, ready to sell. But they couldn’t. they were not exit-ready."
"So imagine you work your entire life building a business, putting in blood, sweat and tears to build this thing, and finally when you are ready to get out, when you are ready to retire, travel more, get some of your freedom back, start another business, you can’t. So why were all of these businesses turned down? it’s due to one, two, or all three of the readiness issues that we are going to discuss on today’s episode and the next two episodes."
Your personal readiness as a business owner
"So Personal Readiness. Are you, the business owner, ready to step away? Are you ready to stop showing up to the office? Now keep this in mind, when you explore exit planning, it doesn’t have to be a one-all-be-all-exit. In fact, many owners slowly transition out, giving up responsibilities along the way. Others like to stay involved and sit on a board to have a say in the long-term vision and direction of the company. There’s not one right answer on how to do this. But for many owners that I've talked with, there’s no consideration for passions outside of the business, there are no goals and objectives for after the sale, there’s no contingency plan, no transition team in place to provide guidance along the way to ensure you are on track and in the best position to be successful. Many times we run into family members not being on the same page when it comes to an exit. There’s a lack of support, there’s no decision on who in the family or not is going to take over the business, or would it be better if you sold to a strategic partner or competitor?"
"What about Life after the sale? There was a study done by the Exit Planning Institute that surveyed business owners asking what do you plan to do post-transition. 47% said retire. They would simply “retire” without any specific plans of what that would involve and didn’t know if they were financially secure and able to afford it. This would suggest that because this answer is so vague about the future, it ends up being a key contributor to another stunning statistic, which states that 75% of owners who sell, regret it 1 year later or another scenario they come to the signing table to sell, and they can't do it and end up walking away. Now besides retiring as an answer 27% of owners had no plans at all for what they would do post-transition and 23% of owners were charitably inclined and indicated they planned to give back."
How to plan for life after a business sale
"So how can we prepare for this? How can we not become a statistic if we are thinking about stepping away or if we want to start a long-term personal plan for ourselves? The first thing I would suggest is to learn about what goes into exiting a business. It’s not just about the business itself, consider how you would live your life outside of the business. What does your identity look like not running your business? These are tough and challenging questions to think through and address early on in the process, I get it. I’ve taken owners through this process before and the one thing I will share is that it will take time. It takes time to digest the thought of not showing up to the office, it takes time to accept that your phone is not going to ring as much as it was when you were running the business."
Keeping the end in mind
"For this episode, I’m going to include a one-pager worksheet for you and it’s called Keeping the end in Mind which is broken up into 4 sections. You can go to beyondyourexitwm.com/podcast, go to episode 23 and you’ll see the link. What you’ll do is identify the Push Forces and you’ll write down what drivers or forces are motivating you to sell. Could be health issues, wanting more freedom to spend with family, travel, legacy, etc. Then you’ll identify the Pull forces. What future life visions will get you through the hardest parts of the sale process? Because the sale process of a business can be an emotional roller coaster. What factors will help you get through that?"
"Section 3 is about Life after the sale and to describe in detail what that looks like. What does your next chapter look like? When does it start? Where will you live? What will you do for work? How are you filling your time? Start thinking through these questions, talk to your spouse, get them involved, and gain their feedback."
"Lastly, section 4 is on the Sale Terms, which is where you will outline what is necessary to achieve what you described beforehand. So you list a sale date, ideal purchase price for your business, vacation time, cash at close, if there’s an earn-out, where you need stay on for a couple of years after the sale, what does that look like? How much would you want to be paid? And there are a couple more on there. So work through this folks, defining what this looks like early on in the process, even if you have no intention of exiting 10+ years down the road, building this roadmap early on will position you for long-term success. With that said everybody, I appreciate you all listening and make it a great day."