Martha and Scott plan to retire in 3 years and start to travel the country and writing a Genealogy book. They have owned their catering business for 17 years, and want to sell their business and use the proceeds for their retirement. How do they get started?
According to a report by global financial firm UBS 41% of business owners plan to exit their businesses in the next 5 years. Many will walk away from their businesses because other options seem unattainable. In 2017 and 2018 BizBuySell.com reports of business sales reported by business brokers there are nearly 10,000 small business sales each year with a median sale price of $245,000 in 2018. 75% of business owners believe they can exit in one year or less but many do not have a plan in place.
First thing is first, and that is to decide which exit strategy is right for your business. There are many ways to slice this, but here are ten options for you to consider.
- Sell to an Eager Buyer – Whether you know a friend, find a buyer online or use a broker, selling to and eager buyer is a nice way to exit with a big chunk of change.
- Sell to Employees – Selling to employees is more doable than you might think. Employees with their industry experience may qualify small business loans because of their know-how. An attorney can structure a plan for you.
- Hand the Business Down – If you have a family member who would like to inherit, buy-in or buy-out your business this can be a good option. Treat this transition like any other sale, however with a proper valuation, legal agreements and the new owner committing early skin in the game so the plan does not fizzle along with the family relationship.
- IPO – If your business has sound fundamentals, strong profitability and superior growth opportunity possibly an IPO is an option for you.
- Liquidate – Maybe you own a nursery in prime urban real estate, as much as it may kill you, consider what would get if you liquidated. If that sum of the parts is greater than the whole then possibly liquidating is your best option.
- Absentee Ownership – Planning for absentee ownership is not really exiting, but rather keeping a toe in the water without a full on swim. You still own the business and you have a savvy enough team, and you have excellent controls in place for your business to run pretty much itself.
- Convert to Passive Income – Let’s say you own a retail shop that has an online drop ship division that takes little or no management? Maybe you strip off the retail overhead and just maximize the passive income from the online drop ship division. Not many businesses have this option, but it’s worth a look-see.
- Owner Operator Agreement –Owner Operator agreements are common in the trucking industry but can be applied to other businesses too. This is where the owner maintains 100% ownership, but the Operator essentially leases the business. He/she hires, purchases, markets and otherwise operates the business like an owner. The stockholder of the business is paid an agreed upon amount (like rent), and everything over that amount the Operator gets to keep as his/her profit. Get an experienced business attorney to write a detailed agreement for this one.
- Partners Buy In – Step lightly towards this one, and take your time deciding and selecting your partner/s. Be sure you have a solid partnership agreement for how partners join and exit, no matter how well you think you know your partner. And know that partnerships look most attractive at times of vulnerability. When things are tough in the business the idea of sharing the load is very appealing, but you must also force yourself think about how it will be years down the road and unforeseen circumstances.
- Merge with Another Company – Maybe there is a business out there that is a good match for a merger. Meaning you are better together than apart.
Now that you have decided what your exit will look like here is how to make your exit plan.
- Decide Your End Game – Decide on your exit strategy, and keep it under your hat. It’s very important for you to know how you plan to exit, but sharing this information prematurely to staff, suppliers or customers can make people run scared and derail your business value with unexpected obstacles.
- Set the Time Line – Identify your timeline, often 6 months-2 years out.
- Recruit and Develop Key Leaders – No matter which exit strategy you choose you need rock star leaders that can execute your vision.
- Get Majorly Profitable – Finishing strong with great profitability numbers will make for the smoothest and biggest nest egg building exit. So it’s time to trim the fat.
- Systematize – Set the blueprint for success by systematizing everything, so it is turnkey.
- Integrate Your Exit Plan Into Your Goal Setting – Knowing where you are going really puts into perspective what things are important to do first.
- Beta Test Pulling Out – Once you have key people and systems in place practice taking days off and being completely unreachable (it’s a great excuse to take a pop vacation), and stress test your business to run without you.
- Decide if Still Exiting? More often then you would think, once steps 1-6 are in place people decide they love their new hands-free business leadership and possibly delay their exit.
- Brainstorm Your Next Move – Victory! You have made it. Now its time to plan out your next move.
In 1999, at the age of 30 I sold my 25 employee service business that I had built, and learned a lot about how to the get the best value, but also about the power of exit planning. I spent 2 years preparing to sell for top dollar and it paid off. But that is a story for another day.
Get busy on your exit planning and please share your thoughts, tips and questions that you encounter along the way.