Ep #063: Exit Options: How to Decide Which One Is Best For Me?

Introduction

"In our last episode, which was Episode 62: Seven Ways to Exit a Business, I discussed 7 ways to exit a business and for this episode, I want to focus on how to think through each of those different exit types and what each of those would require you to do if you went down that path. Because it’s rare for the case to be that you sell 100% of your business for all cash, you get paid and easily walk away. They can happen but for most small business owners, there needs to be a willingness to stay on during the transition"

The Exit Matrix

"So I’m going to explain what I call the Exit Matrix, which is a graph that plots the various exit types. I included a link to bring this up within the show notes if you’re able to but if you can’t I can explain what it looks like, it’s not complicated at all. The Exit Matrix will help you compare the different exit types we discussed, looking at them from two perspectives: How important is it that I maximize the cash proceeds of the sale? How long am I willing to stay on after the sale? And so on this chart, the Vertical axis represents how much you can maximize the cash proceeds on the sale, the higher you are on the vertical axis, the higher the potential to maximize your cash proceeds on the sale, and the lower you are on the vertical axis, the less likely you’ll be able to maximize your cash proceeds."

Now the horizontal axis represents the willingness required to stay on during a transition. The further out to the right on the horizontal axis you are, the higher your willingness will need to be to stay on during a transition. The further left on the horizontal axis you are, requires you not to have such a high willingness to stay on during a transition.  

With that said each exit type is plotted on this graph so visually you can instantly compare which exit types could lead to a higher cash payout upon a sale, and which of the exit types would require me to stay on and be involved in the business throughout the transition.  

So on one end of the spectrum, you may have another business you want to start, or you just want to get the highest dollar value out of your business to help fund your retirement, therefore you want to maximize your cash proceeds to the highest degree and minimize your time in your company after the sale as much as possible. In this scenario, you would look to sell your business outright to a strategic buyer. And if you reference where “Sell to a Strategic Buyer” is placed on the graph, it’s at the top of the Vertical axis with the highest chance to maximize cash proceeds and far left on the horizontal axis requiring you the least amount of time to stay on during a transition. Selling your business to a strategic buyer is one of the most difficult transactions to pursue but if you start planning well in advance, it certainly can be done, and you’ll get rewarded for it.  

At the other end of the spectrum, you may have built up enough investable assets outside of your business to be financially secure, and you are willing to continue to be a shareholder in your company for the long run. If this is you, then hiring a CEO and getting rid of your day-to-day responsibilities may be your best exit option. On the graph, the Chairman CEO exit type is on the low end of the vertical axis for maximizing proceeds and furthest to the right of having the most willingness to stay on during a transition.  

No one point on the exit matrix is better or worse than the other. The key to a happy and lucrative exit is to get clear on your priorities and understand how much you’ll need to support your desired lifestyle in the next phase of your life because that will help determine which exit type is best for you and your family. So if you haven’t already click to see the notes for this episode on whichever app you are listening on and you’ll see the link to bring up the graph, again it’s super easy to understand which is why I love it to compare the various exit types. I hope it’s helpful and you enjoy.