Make sure your business has this in place before you retire.
One of our clients, Julie, is a business owner that wants to retire and exit her business within the next 3-5 years.
Julie was smart because she came to me a few years before she wanted to retire. I get business owners all the time telling me they want to retire at the end of the year…but they have no succession plan in place.
News flash: not gonna happen!
The first thing I did when Julie came to me was ask her 2 questions:
1. Do you have someone internally in a position to take over your business?
(This may seem like an HR question, but if you don’t have someone in place to take over it can become costly to find the right talent. Or worse yet, the wrong person could tank your
2. If you don’t have someone internally, will you be selling to someone on the outside?
When you sell to someone on the outside there is a very stringent acquisition due diligence process that the buyer will take you through while they are deciding if they want to buy
This shifted our conversation to discussing her exit strategy plan. Julie had to decide whether she wanted to have a clean break from the company or transition out slowly. In other words, would she leave immediately or take on a lesser role (say, as a consultant) as new management took over?
Her other concern was that her best employees would leave when she left.
Leaving her business sinking without her.
The key to avoid that?
A compensation program to retain the top talent within the business. As they say, money talks (don’t I know it?!). And of course, we’re not just talking about money either. Growth opportunities, development, flexible work, vacation time, benefits, and more are all key components of a compensation program.
Once you know who will take over the business in 3-5 years (or you decide to hire or even sell), you can move on to my favorite part: your asking price.
How do you figure out your asking price?
Start by answering these questions:
- Do you have a price in mind?
- How did you get to that number?
- Is it a wish number or is there valuation behind the number?
- Does it really support what you want to do in retirement?
- Do you know all the implications of that number?
- Why are these questions important in a succession plan?
There are so many factors that go into what the price of a business will ultimately be. The two main ones are:
- The financial performance of the company over the past 5 years
- What value a buyer sees in the company
It would be ridiculous to expect to get your dream price for your business without being able to give the potential buyer information about its financial performance.
It would be even more ridiculous to not get the best possible price for the business because there weren’t solid plans in place.
Bottom line – there is a LOT to plan, and your succession plan needs to be in place in order to answer all of these questions.
1. How prepared are you to exit? Do you have a rolling 3 – 5 year window?
You have to select a timeline. Don’t be one of those owners who comes to me wanting to retire in 6 months with NO plan in place to make it happen!
2. Have you created a written plan for exiting your company and shared that succession plan/exit strategy with other people?
If it’s just in your head and you haven’t shared it, is it really a plan?
3. Do you have a team of qualified advisors to assist you with your exit strategy?
If not, there’s no time like the present. In addition to your CFO, you’ll likely need an attorney, wealth planner and tax advisor. It’s important to have this team in place to ensure
that you get the highest value out of the business. All of the sweat equity that has gone into building the business needs to be unlocked…and go into your pocket!
Stop the rolling 3 – 5 year window and get moving!
Take a step back and identify where the gaps are and where questions are missing important answers. Put together a plan to close the gaps. Communicate the plan to those around you and get your trusted team of advisors in place.
If you don’t want to work forever and you’re ready to take these steps, call me and let’s work out a plan to unlock the value of your business together.