Article published with permission from Tidwell & DeWitt and Ran One
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Four Pitfalls to avoid, when selling your business
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You are your business and your business is you. So, when considering an exit strategy from your business, you need to ask, ‘Am I exiting myself?’ This may seem like an odd question so let’s rephrase it and ask it in a more direct manner.
“Are you really ready to exit your business?”
Many business owners approaching retirement are looking for a way to exit their privately-held business. When this process begins, the owner thinks about the monetary considerations, i.e. how they will be financially ‘set’ for their next stage of life. What is often overlooked when business owners begin from this starting point is the mental game of business exits.
Business owners are well advised to take an objective assessment of how mentally ready they are to leave behind the business that provides so much to their lives. The first area that a business owner can examine to determine their mental readiness to leave their business is their daily business activities. In short, if the day-to-day operations of the business are highly dependent upon that
owner’s presence, then the owner may not be ready to exit the business right away.
The following questions will help in determining your mental readiness for your business exit.
- How involved am I in the day-to-day running of the business?
- Do I have a plan as to how I will spend my leisure time away from the business?
- Are my thoughts and habits of running a business so routine that I won’t know what to do after the exit?
- Do I view my business as growing and providing a good return on my invested capital, or am I more interested in the lifestyle that the business provides?
- Will I be able to think clearly throughout the exit process so that the decisions I make are based on objective criteria instead of the subjective ways in which I feel about the exit?
Honest answers to these questions will set you on the path of considering your mental readiness for your exit.
If you are highly involved in the daily activities of the business and you really enjoy what you are doing, then you probably have many years before you seriously consider an exit from your business. This doesn’t mean, however, that you shouldn’t start planning for that exit. In fact, it is the planning that will likely lead you to make changes to the business to accommodate your eventual exit. In other words, without changing your daily involvement in the business, the exit difficulties that you face today will be the same ones you will face tomorrow.
On the other hand, if you have removed yourself from the daily operations of the business, you likely see your business as an investment and not as a job. If you have determined that it is time to ‘cash in’, your mental readiness would appear to be rather high.
The significance of knowing whether or not your mental readiness for an exit is high or low relates to your options for an exit. Simply put, if your mental readiness for an exit is low, you will want to design a multi-year, phased exit strategy from your business. By contrast, if your mental readiness is high, then you may want to seek an outside buyer for your business – someone who can reward you quickly for the money machine that you built.
So, whether you are ready today or not, your planning needs to account for your mental readiness for a business exit. When you have this awareness, your options can be examined to fit your personal needs and circumstances.
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Are You Really Ready To Exit Your Business?
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