The Freedom Flywheel - Blog , Exit Planning

ARE YOU COUNTING ON SELLING YOUR BUSINESS TO FUND YOUR RETIREMENT?

Tue, 19 Mar 2024 17:54:19 +0000

Most of the owners I work with started a business so that they could work for themselves in their chosen profession. Essentially, they were creating themselves a job – expecting to have more freedom, control, and income than working for someone else. Let’s face it, it’s great to own a business where you get to do the work you love! It’s what we call a lifestyle business. A lifestyle business generates good income for the owner but that doesn't necessarily mean it has transferable value to a potential buyer. When it works, it’s awesome. But...

What seems like an exciting challenge and adventure in the earlier days of practice ownership – long hours, increasing revenue, growing a business – can start to wear on you over time.

It might not be so noticeable when you’re younger and full of enthusiasm, but the stress and pressure take their toll over time. At some point, you may end up feeling frustrated or burned out. It’s not fun to look at your accomplishments and what you built and realize that although you’re successful on the surface, what you’ve actually created is something I call Owner Overload. You feel stuck and trapped in your business, unable to take a (real) break and feeling a bit resentful and disillusioned that while you’re making good money, you are unable to enjoy it. It’s at this point that many owners start to think about escaping. Sometimes quite literally – fantasizing about throwing their keys on the front desk and walking away. (Or was that just me?) But mostly, they think about SELLING their business. It’s an appealing option. You get to walk away and be free. AND you get a big payout in return for your hard work.

There are 2 BIG problems with this plan. One that you probably already know about. And another that you might NOT know about.

First, let’s look at the one you’re probably already aware of. You’re not ready to do this yet. (If you were, you’d be gone already!) You don’t have enough personal money socked away to fund your retirement and you have no idea what else you would do for work to make up the difference. So, you think you need to suck it up and put in another 5, 10, 20 years of relentless work before you can pull the pin. Meanwhile, at the back of your mind, you plan to one day sell the business and realize the number you told your financial planner your business was worth. This is where the bigger problem lies – the one that many business owners aren’t aware of.

You may not be able to sell your business for what you believe it to be worth. You may not be able to sell it at all.

If you, the owner, are at the center of the business – your business isn’t worth anything aside from what your physical assets could be sold for. You may be pulling good money out of it, but the business is only valuable when you’re making it go. Without you, the business ceases to exist. This makes your business unsaleable – and that number on your financial plan unattainable. You might not know this, but 80% of businesses listed for sale don’t sell. So many times, I have been approached by owners who were eager to sell - and there were buyers eager to buy - but we couldn't reach a deal because the owner had not made their business ready to sell and attractive to buyers. I had to tell those owners that those hungry buyers weren’t interested. No one wants to buy their way into Owner Overload.

People in the market to buy a business want to buy a GOOD business.

A GOOD business is a valuable business. It:

Makes lots of money. It’s consistently profitable.
Has the potential to grow.
Runs well without the owner’s direct involvement.
Has a steady clientele of happy, repeat customers or clients.
Has documented processes and systems in place.

Here’s something interesting: a good business to BUY is also a good business to RUN. This is why you need to include Exit Planning in your business strategy.

When you build a business with the plan to sell it one day, you end up building a business that is a joy to run as well.

And this is GREAT news for anyone feeling stuck in Owner Overload. You’ve already checked some of the things off the list of what makes a valuable business. The sticking points for most owners are items 3 and 5: having a business that runs well without the owner’s involvement and having documented systems in place. These are fixable. And if you choose to do the work to fix these now, not only will your business be valuable and saleable when you’re ready to leave – it will also free you from Owner Overload NOW. It’s a no-brainer. You can carry on as you are and have nothing to show for it in the end. Or you can free yourself and create a business you love, then cash out when you’re ready. If you’d like to go through door #2 I can help. Book a strategy call here: Book a call with Dawn.

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Exit Planning: the Most Overlooked Business Strategy

Tue, 19 Mar 2024 15:13:31 +0000

An exit plan may be one of the most important strategic tools in your toolbox – but chances are, you’re avoiding it. You’re not planning to leave your business anytime soon, so why bother? I’ve found that most business owners don’t realize the value of exit planning until it’s too late. But a good exit plan could save you millions of dollars, plus years you’ll never get back. Because exit planning isn't really about the exit at all. It's about building a business that works for you, instead of the other way around. Even if your plan is to stay at the helm of your business for years to come, developing an exit plan is just good strategy. With a sound exit plan in place, you give yourself more freedom and flexibility in your day-to-day operations – while also increasing the value of your business, and securing your financial future. Here’s how.

What is an exit plan?

An exit plan simply outlines your strategy for separating from your business – because you WILL separate from your business at some point. Whether your exit is voluntary or involuntary, you must be psychologically, organizationally, and financially prepared for it. A good exit plan isn’t developed at the last minute – it represents your ultimate goals for yourself and your business, so it should be part of your planning throughout the life of your business. You want to ask yourself (regularly!) "what's next?" so that you can prepare for it. Otherwise, you run the risk of working until you just can’t anymore, while also driving down the value of your business and eventually having it completely dissolve.

5 Steps to Develop your Exit Strategy

Creating an exit strategy might be easier than you think – the following steps can guide you through the process.

1. Start with questions

This is the soul-searching part of the process. What ultimate end goal do you have for your business? In an ideal situation, how do you imagine your separation from your business? Are you currently maintaining or growing your business’s value and success? What is important to you? Receiving a large sum of money up front? Leaving a legacy through the work your business has accomplished? Something else? Do you love what you do – and would you want to keep doing it indefinitely? Or would you like to reduce your work hours, allowing you to spend more time with family, travel, or pursue other interests? Your answers to these questions can help shape what your exit plan should look like. Ultimately, your answers should help you articulate a three- to 10-year vision that aligns your values, personal life, financials, and business. Why this timeframe? Research shows us that it generally takes between 3 and 10 years to optimize the value of your business and to exit it well.

2. Define the current situation

Step 2 asks you to take a good, hard look at your current business and financial situation. This part of the process is all about getting clear on your overall numbers, plus your current resources, systems and processes. Once you’ve clarified where you are and where you want to go, you can reverse engineer a roadmap to take you there.

3. Make it all visible

A good dashboard is key for making sure your vision, your plan and your progress stay top of mind. Being able to visualize how you’re tracking toward Key Performance Indicators can help you stay focused and reach your end goal with more efficiency and less stress.

4. Prepare your team

If you’re planning to eventually exit your business, you must have confidence in the team who will step up to lead. If that’s not the case today, now is the time to make it happen. It’s essential to analyze the strengths and zones of genius for each member of your practice and ensure that the right people are in the right roles. If you have gaps in competence or expertise, it’s time to shore them up. Your exit plan will include measures to develop your team members as the next generation of leaders and to transfer to them the goodwill you’ve worked so hard to build.

5. Optimize your systems

As part of your exit plan, it’s important to automate, delegate and eliminate processes. This helps you simplify and streamline your business, creating stability, consistency and predictability. This is critical to your practice's success, so you can sell it, pass it on, or simply take a vacation without worrying that it's all falling apart without you there. Whether it’s an accounting process, project management system or something else, there are concrete steps you can take to loosen your business’s hold on your life.

Don't wait! The right time to begin exit planning is TODAY

Don’t wait to start planning your exit strategy until you’re forced to unexpectedly step away from your practice, or realize you won’t have enough money to support your desired lifestyle later. Whether you plan to exit your business in 12 months or 10 years from now, the time to plan your exit strategy is today.

3 Reasons to Incorporate Exit Planning in Your Business Strategy

Tue, 20 Jun 2023 16:22:39 +0000

At Productive Pressure, we recommend that business owners always begin with the end in mind, then reverse engineer their plan. The “end in mind” for many owners is a business that runs well, makes lots of money, and doesn’t take all their time and energy. What many owners don’t consider (but should) is their eventual exit. Here’s why.

1. You WILL exit your business one day

There are 2 ways to exit - either voluntarily or involuntarily. A voluntary exit could look like one of these:

Sell the business and cash out, moving onto your next adventure with a pile of cash in the bank.
Reduce your involvement to part time or advisory only and continue to get paid.
Retire and let the business run itself, generating income for you through profits and dividends.

An involuntary exit happens due to one of the 5 Ds

Divorce
Disagreement
Disability
Distress
Death

I’ve had personal experience with the first 4 Ds – and none of them are fun. By incorporating exit planning into your strategic plan, you manage risk for the 5 Ds and create some nice options for yourself down the road.

2. Your business probably isn’t worth as much as you think it is

Practice owners typically have 70% to 90% of their wealth tied up in their business. Most financial planners put the value of your business into your net worth calculation. This gives the (mostly false) impression that the business will one day sell for that number. My business was always part of my financial plan, and every year I looked at that big number somewhat skeptically. The skepticism was warranted. Most financial planners don’t have a feel for whether or not a business is saleable. (My business wasn’t saleable until I made some changes.) This means that you could be basing all your financial decisions on bad numbers. It also ignores this reality: over 70% of businesses that are put on the market do not sell. And of the ones that do sell, many sell for less than the asking price. This is why smart business owners focus on building value (what their business could sell for) rather than revenue. Even if you love running your business and don’t plan to retire, you’re still wise to build your strategy around exiting because of the perspective it brings. In other words…

3. A business you could sell is a business you’d want to keep

What do buyers look for when considering a business to purchase?

A business that is profitable and makes good money.
A business that doesn’t require the owner’s day-to-day involvement. The owner is not a key part of revenue generation (being the sales rainmaker) or the person with all the answers or the person who interacts directly with their customers.
A business with a strong team and good systems in place.

This kind of business can make you a lot of money – without taking up all your TIME. Even if you choose to stay closely involved in the business, you won't feel trapped in Owner Overload. Who wouldn’t want that?