It doesn’t have to be as scary as you might think.
I’ve worked with several clients who are working through this transition, hoping to leave a healthy and prosperous business. Here are some of the approaches which have helped a great deal:
Give yourself time. Like any big change, the luxury of time tends to give you more options, and more time to learn and adjust plans. Three to five years is a good range to shoot for, and 10 would be even better. If you’re in an emergency situation, it’s quite likely that you won’t be able to achieve a great outcome.
Get clear on your goals. You might start with the mental image that there’s someone out there eager to hand you a big briefcase full of cash, and who is also ideally suited to taking the business in the direction that you’d always envisioned. We all know this is incredibly unlikely. Rather than looking for a quick and easy solution, start with what your goals truly are. You might have your entire retirement finances invested in the company, but realize that you don’t necessarily need all that cash on Day 1; you’re just looking for security and sufficient income to maintain a lifestyle.
Explore plenty of options. The best solution might be an unexpected scenario, so now’s the time to get creative. Even if you don’t go very far in the evaluation process, you’ll learn a lot – and have more confidence in the outcome – if you’ve looked at both traditional and innovative solutions.
What do some goals typically look like?
• I want to be able to extract a certain profile of cash flow.
• I need assurances that I’ll be able to continue to live off this income for a period of time.
• I want my leadership team, employees, customers and partners to be taken care of.
• I’d like the new owner to be ideally suited to the challenges this company will be facing.
• I want to change my lifestyle.
• I definitely do (or don’t) want to continue being involved in the business.
• I want to invest in starting up something new.
When I’m helping my clients through those questions, my role is to ask “Why?” and “What does that mean?” Over time, we emerge at a balanced and compelling vision of what the ideal future will look like.
What are some of the scenarios you might want to explore?
• A buyout by someone looking to enter your industry/
• Moving yourself out of day-to-day operations into just an investor/adviser role, as a transition step.
• Acquisition by a competitor, partner, customer or supplier.
• Shutting down the business and selling off the assets.
• Selling the business to your existing executive team.
• Using the opportunity to change the vision and direction of the company.
Under most scenarios, it’s critical to get a fair and objective valuation of your business. I’d almost always advise pulling in a professional, because there are just too many traps and pitfalls which can steer you off course. They’ll also look at the state of your industry and your company’s trajectory, not just the current valuation. Because you’ll probably have time to work on improving financial health, they also can steer you toward making better decisions before you exit the business. I’ve talked mostly here about the company’s side of this decision. Just as important, though, is the personal side. Who do you want to be after the transition? What will you be doing?
My belief is that this topic is hot right now because we’re recovering from the recession, and aging business owners are looking at this as potentially the right time to retire. If you’re thinking that way, you should start working on options now. Even if you don’t exit your company any time soon, you’ll learn some highly valuable concepts.
Carl Dierschow is a Small Fish Business Coach based in Fort Collins. His website is smallfish.us.