One of the most important decisions you will make as the owner of a middle-market business is deciding upon the timing of your eventual exit. Experts will tell you that you should start planning for your exit from the business the day you open your doors. Although that may seem logical, the reality is that you will spend the next 20 to 30 years of your life so busy running it that developing plans to exit and becoming buyer ready would be a luxury!
However, ultimately, you will need to decide what to do with your company and the rest of your life.
Having worked with middle-market business owners for almost 25 years, I am fully aware of how hard this decision is. It is probably the most emotional decision that many of you will ever make. Your identity (not to mention your entire net worth) is tied up in your company. The “baby” you created decades ago is now a fully operational, profitable entity with long-term growth opportunities in front of it. However, given your age, health, and retirement desires, you may not be the “best” person to take the business to the next level. Coming to that realization is tough but necessary.
For others, the time to exit has come simply because you are burned out. The 60- to 80-hour weeks have taken their toll on you physically and emotionally. Even the fact that you have been in the same industry dealing with the same issues day after day can impact you. And, you have looked back on the past decades and now realize that it is time to re-connect with family and friends and to begin the next phase of your life. Or even just take a vacation.
Many of you are simply ready to move on. Many entrepreneurs I have met love the initial start-up phase of a company but really don’t enjoy managing a much larger entity. Gone are the exciting days of the initial small cadre of employees “winging it.” Now the job has become a grind as you spend less time with clients and the product and more time haggling over HR issues and financing.
For whatever the motivation behind choosing to become buyer ready and sell your business, deciding when to exit your business is going to be one of the most important decisions you will ever make. Maybe even a bigger decision than the one you made to start your company in the first place. The most important advice I can give is first, be sure that you really want to exit. Don’t waffle on this one. Once you start down the path of exiting, the key decisions you make are tough to unwind without impacting the operation of your company. So be sure that now is the time.
Secondly, don’t undo your decision at the 11th hour. Over the years I have seen countless deals blow up at the negotiating table when a seller decides not to sell. In those cases it usually has nothing to do with the buyer, the price, or the deal structure. In most cases the seller gets cold feet because the idea of not going in every day and turning on the lights and running the business is too difficult to handle.
So I recommend that you do several things at the outset when you are considering your exit and sale of your company:
- Evaluate your current lifestyle. Do you have time right now to do the things you enjoy? Do you still like the daily grind of running your company? Does worrying about your business keep you up at night? What would you love to do right now if you could do anything? Answering these questions will help you evaluate your motivation and desires relating to an exit.
- Talk to your spouse, family and friends. Quite often our loved ones can be mirrors back to us if we simply ask them to be. You might be surprised at what you hear from your closest family members when you bring up the idea of selling your company and doing something different. Keep in mind that your wife might have a different view on you being around the house all the time!
- Consult with trusted advisors. Do this confidentially of course and only with those folks you trust and respect. Tell them what you are feeling about exiting your business and why you want to do so. Be open to them and ask for their honest input.
- Meet with an M&A advisory firm to find out what your options may be. Talking with an expert about selling can help you crystallize your thinking and give you greater understanding about the selling process and what you can expect. Selling your business is very complex. The more knowledge you have about the process at the outset will help you manage your expectations as you progress.
Ultimately, know your motivation before you start. Keep in mind that the steps you take to exit your business are rarely completed without some challenges arising. It is not an easy process. You will have hard decisions to make throughout. So be sure you have a clear understanding of why you want to exit. And then keep that understanding top of mind as you progress.
What you want to avoid is what I see all too often: waiting until unforeseen circumstances force you to sell. There are so many things that we ultimately have no control over. Death, divorce, illness, natural disasters, economic declines, and dozens of other circumstances can force you to exit when you have to – not when you want to.
I have heard too many horror stories of middle-market business owners being forced to enter the market under a fire-sale scenario because of circumstances beyond their control. Whatever you do, don’t fall into that trap. Come up with an exit plan that defines why you want to exit, when you want to exit, and how much you will need when you exit. This will allow you to be proactive rather than reactive. Once you have made the emotional decision to sell, whatever your personal motivation may be, stick with the plan. And dream of your next phase in life!
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