The envisioned and sought after business exit is looming around the next corner. Whether out loud or in private, you have been waiting in anticipation (mixed with some anxiety) for this day for quite some time. Visions of mojitos on the beach or adventures with the grandkids have been playing in your mind for years.
But, have you taken time to dig into the details?
A business exit is rarely simple. To successfully exit, business owners should have a strategic exit plan several years prior to planning to sell.
To help get the ball rolling, here are the top 5 questions you should ask yourself now:
1) Is the Business Ready?
Remember you’re in a marriage with your business. Your business has its own social security number (FEIN) and is in all rights considered separate from you. And, the longer you’ve been in it, the more convinced you are that it has a mind of its own.
This relationship is a two-way street through and through.
So, when you get ready for the next transition, make sure the business is ready too. The biggest mistake I see is when a business owner believes the exit is all about them. “I want,” is not an exit strategy.
So when you “want” to sell in 3-5 years, back your desires up with strategy and logic. This means considering market trends, timing, business profitability and more. The market is constantly changing. The right time to sell could be this year, in 3 years, 5 years or longer. It is also possible that you already missed the right time to sell.
That’s why it is essential to consider the business when planning out your transition.
2) Am I ready to sell?
What’s next? The day after you leave the business, what are you going to do?
Entrepreneurs are adrenaline junkies who love to compete. You are an extreme athlete in the business world. More often than not, your life is comingled between business, family, friends and social. The sandbox we call life has boundaries that are often crossed.
Just like elite athletes, business owners get to a point where they no longer have the competitive edge to fight and win. Be honest with yourself. Spend time planning what you are going to do once work isn’t your driving force. The key is to find something that will stimulate you. Otherwise, boredom will become a lonely and unfulfilling solitude.
3) Do you have enough money to leave?
Be honest. How many personal expenses creep into your business accounts? Cars, cell phone plans and vacations all tend show up on the books.
Those will all have to be paid for with after-tax dollars moving forward.
In fact, there are about to be several drastic financial adjustments. Long-term medical care will be the scariest part of leaving. Corporate medical coverage won’t be an option anymore.
The first step is creating a personal budget outlining what you need to live on. I always suggest meeting with a CFP to determine if your investments, SS, 401k, business sale income, etc. is enough. If not, maybe you have to get a job, move to lower your expenses, make life style changes, etc.
Ensuring your personal financials are set is essential to moving forward regret free.
4) What is the right exit?
Not all business will sell.
In reality, less than 20% of small businesses actually sell. It’s important to understand the value of your business. Differentiate between a business and a job. A business has value beyond your working capital. In short, if you have to hire someone to do your job, would the business still make money? If the answer is no, then you will be selling a job.
If there is little beyond working capital, liquidating is the easiest exit.
Liquidating your business is like landing a plane softly on the runway. Everyone walks away without injury. Unlike liquidating, bankruptcy is the crash landing version. Best case scenario, you are only facing excessive injuries.
Selling is not the best option for every business. If it is, you will need a well-planned and executed exit strategy to come out successful.
5) How does the sale process work?
Learn everything you can about the sale process. This will help you determine the best exit strategy, as well as formulate a successful exit plan.
There is a lot of prep work, liability, time and effort needed to sell a business. In addition, it’s not cheap. Your professional support system will require fees. Attorneys, CPA, brokers and Uncle Sam all get their cut before you do.
Bottom line, knowledge is power.
Read everything you can about the process. Meet with other business owners and listen to their stories. Interview professionals and try to understand clearly how your business transaction will work. It’s a commitment to sell your business and understanding that commitment is crucial to its success.
The more you are open and honest about your business, the more successful your exit will be. Many business owners don’t spend time digging into these five elements. Not doing so sets you up for an exit at the wrong time, unprepared and without the means to continue with your current lifestyle.
If you are gearing up for a sell in the future, make sure to avoid the nine biggest mistakes that entrepreneurs make when exiting their business.
This article was syndicated from Business 2 Community: Are You Ready to Sell? 5 Questions to Ask Yourself Now
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