Business owners can go through all kinds of emotions when selling up, but how you feel about exiting your business could all depend on three things. Firstly, your reason for selling, secondly, how well the sales process goes and, finally, your personality. Some people cope with change well or are excited about their plans for the future, but others can find the process unsettling or upsetting.
Regardless of what you envisage for your next chapter in your life, there are key factors that will lead to a happy and lucrative exit from the business’s day-to-day operations. However, not preparing adequately for an exit can often lead to feelings of regret. In fact, 75% of owners who sold their businesses say just one year after exiting that they wished they had never sold it1. To avoid being part of this statistic, here are three top tips on how you can prepare to sell your business and minimise the emotional impact.
1. Establish why you want to exit your business
In most cases, there are a combination of factors that are either “pushing” you away from your business or “pulling” you to something else. Push factors are legitimate reasons to exit your business, while pull factors are things you want to do after leaving the business.
An example of typical push factors forcing many business owners to step away from work include reaching retirement age, feeling the business has reached its peak, developing health issues, or just wanting a break and to reduce stress. Alternatively, things that attract business owners to leave a business could be that they would have more time with friends and family or could make a real difference in a new business.
The happiest departures happen when there are just as many compelling pull factors as push factors. So, find five minutes and write out a list of all the elements that make you want to exit your business. Then make a list of all the things you are excited to do after leaving your business. This will help you make peace with exiting the business.
2. Align your exit with why you are leaving
The ideal scenario does not always happen when exiting your business. So, aligning your exit with why you are leaving is the best way to approach selling your business and reducing the emotional impact. Some examples of the most common exit types can be selling a business outright, going into liquidation, transferring the business over to a family member, or going through a management buyout.
One example could be that you have a health issue and need to exit the business quickly. In this instance, the best exit strategies for you would be to sell outright; you could ask if one of your managers wants to buy you out or even transfer the business to one of your family members.
3. Figure out your number
If an existing business’s value was determined by the owner, it would most likely be priceless. However, the ultimate judge of your company’s value is the market itself. No matter how much you want for your company – or what you think you need – if the market says the business is not worth that, then you are out of luck.
So, as well as having your business evaluated to understand what it might be worth to a third party, there is another calculation you should make, which is to understand what the business is worth to you. When the market valuation and your personal valuation coincide, it may be time to consider an exit. However, the price you are willing to accept could depend on why you are exiting the business. For example, if you are looking to retire, you will want to ensure you have enough investable assets to create the income stream you need to fund your retirement. If you have decided to exit your business because you are bored and want to move on to another project, you may want to sell your business quickly and would be willing to take a discount.
When looking to exit your business, ensuring you have dotted the i’s and crossed the t’s is essential to an exit with no regrets. Work out why you are exiting the business and then estimate what you think the business is worth. Once you have considered all factors and have a number you would be happy to accept, then you are ready to sell your business.
It is equally important to be honest with yourself. Have you established how much your business is worth to you? Do you have a contingency plan in place for once you are out of the business? Are you mentally going to be able to detach yourself from the business? Have you considered how your employees will be treated when you exit your company? If you want an exit with no regrets, these are all important questions to consider. Of course, only you will know the answer to whether you are prepared to sell your business or not, but this advice will go a long way in helping you prepare.
For advice on buying or selling a business, please get in touch.
1 The State of Owner Readiness Study 2013 by Exit Planning Institute