Previously, we examined that being mentally ready to sell your business is the first step to looking at your life’s work in terms of its reward and contribution to your future.
On the business front, we measure financial performance by going “scoreboard” and reviewing our P&L monthly. From this we develop an informal basis for determining the value in our business. When we decide to sell we may elicit an exit planner, business valuation expert or M&A transaction specialist to harden those numbers.
Equally important, we should regularly meet with a personal financial planner to determine what we have and what it would take to maintain our current lifestyle and meet our exit and retirement goals.
These two processes, business and personal, are vitally linked in our overall net worth, yet typically they are marshaled by separate advisors. The largest unknown in the process involves the value of our business and the market’s appetite for what we have helped create which makes the process hard to predict for many companies and their owners.
Are you financially ready to sell your business?
Having gone through this process and “what if” scenarios, it is often helpful to have an outside perspective to help us align our mental and financial readiness based on what the numbers tell us. It’s equally important to have someone capable of narrowing the gap between actual value and perceived value.
I have only met a handful of entrepreneurs who have a realistic and thorough idea or analysis of the actual value of their businesses. Put simply, optimists by nature, having built considerable “sweat equity”, most entrepreneurs think their business are worth more than they really are.
Having someone that can bring these realities into greater focus and, perhaps, the ability to meet owner’s value gap objectives over time can prove very valuable for many entrepreneurs. Where gaps exist, they can be filled with proper strategy, planning and the correct members on the team.
Having said that, I have found in speaking with many entrepreneurs and being one myself, there are typically 4 types of entrepreneurs as it relates to financial preparedness and readiness to exit.
Financially, which business owner are you?
- Fiscally Fit: Well off – Future lifestyle not dependent upon sale of business.
- Financially Illiquid: Not well off per se, most of worth tied up in the company, future lifestyle dependent on sale.
- Burnt-Out: Financial concerns are secondary / done with day to day – find me a seller at the highest price, I want out! (business is profitable).
- Risk Mitigater: Not well off; may be feeding the company – has to sell ASAP to avoid further financial impact (business not profitable).
At first blush, profitable exit opportunities may only exist for owners 1 and 2. However, exit events or partial exit events are possible for each of these from a financial standpoint and, in-fact, given the individual needs of each owner, the exits may look very different for each individual and company. Nevertheless, value can be achieved with the right mental preparedness and financial assistance applied to the owner’s desired outcomes.
Although I suspect you will be able to easily identify which business owner or entrepreneur you are in the above list, and even be able to assess your own mental readiness for making the transition, the next step is integrating the two in a cogent assessment of where you are and where you want to be.
In short, even though swinging for the fences may not be in your future, you can extract additional value out of your company over time in a planned exit.
As we examined in “Selling your Business is Like Running a Marathon,” the opportunities for successful exit for many companies exist with the right mindset.
Anyone can exit; however, exiting profitably takes both mental and financial preparedness and the right team on your side.
If you want to know if your business is sellable, try this free online tool.
By Craig Dickens, OneAccord Principal