The Smart Business Exit: Getting Rewarded for Your Blood, Sweat and Tears

By Geoff Green

“Every business owner should read this book!”
Alan Kohler

How do I get rewarded for the blood, sweat and tears of building my own business?
When I exit my business will I achieve financial freedom?
How do some entrepreneurs sell their businesses for incredible prices?

• Language: English
• Publisher: BookBaby
• Release date: Nov 10, 2014
• ISBN: 9780987499417

Book preview

NOTES

Part I

WHY YOU NEED A BUSINESS EXIT PLAN

For time and the world do not stand still. Change is the law of life. And those who look only to the past or the present are certain to miss the future.

John F Kennedy

BUSINESS EXITS ARE HARD

Knowing yourself is the beginning of all wisdom.

Aristotle

A STRESS-FREE BUSINESS EXIT?

Over 30 years I’ve heard former business owners describe their business exits in many ways. Stress free is not one of them.

Even if you have a great business and are well prepared, the reality is most exits are stressful experiences. Business exits are difficult in two broad ways:

•First, dealing with the hard stuff: the financial, legal, logistical and due diligence aspects of your business exit. We spend a lot of time looking at these issues, particularly in Part II of this book.

•Secondly, dealing with the emotional or so-called soft aspects of your business exit. These issues are frequently overlooked by business owners and their advisers during exits, often because it’s difficult to clearly articulate their source and nature. Also, many business owners and their advisers are uncomfortable dealing with them.

In this chapter we focus on the emotional issues that often arise during business exits and why they can make exits so hard. We are going to look at this first, because if you don’t acknowledge and deal with these issues up front, achieving a smart business exit will be difficult.

Let’s start by looking at what it’s actually like being a business owner.

BUSINESS IS EMOTIONAL

Whether we like it or not, the simple fact is business is emotional.

In business exit workshops I often ask business owners tell me how you feel about your business. Although I’ve asked that question many times, I never fail to be moved by the sheer intensity of the emotions that pour out. I’m bombarded with responses like:

•my baby

•roller-coaster ride

•blood, sweat and tears

•proudest I’ve ever been

•terrifying

•exhilarating

•exhausting .

Those who work regular jobs and have little interaction with business owners often find this strange. They assume business owners would always be serious, rational and unemotional in running their businesses. However, what you go through in starting, running and eventually exiting your business is something few people can understand unless they have done it themselves.

Putting it all on the line

When you fully commit to your business, everything – quite literally – is on the line: your house, your car and all your business assets. All of your intangibles are also on the line: a steady income, your reputation, your sense of self-worth and all the other things you gave up to pursue your business dream.

Running your business requires most of your time, all of your energy, and levels of focus and persistence most of your employee friends will never comprehend. While many employees have challenges and stresses in their lives, few are faced with what are, at times, overwhelming pressures of owning and running your own business.

Being told by almost everyone you deal with that what you are doing will never work after committing everything you have to your business idea can crush the toughest of wills. On top of that, you are at the whim of multiple external and uncontrollable forces such as your bank, your largest customers and the economy, all of which can destroy your business vision in a heartbeat.

While most business owners are confident and optimistic people, you wouldn’t be human if you didn’t have fears, doubts and concerns. All business owners have to deal with issues like:

•What if my major customers stop buying from me?

•What if my new products or services flop in the marketplace?

•What if I get sued?

•What if the bank won’t refinance me?

•I put so much time into my business. Is it fair on my family?

•How will I stay on top of the bills?

•How can I retain my staff and keep them motivated?

In some form or other these issues tend to gnaw away at business owners year after year. While the extent to which these issues play on the minds of business owners varies depending upon individual circumstances, they don’t go away.

BUSINESS EXITS ARE EVEN MORE EMOTIONAL

For most business owners running their business on a day-to-day basis is often an emotional experience. This is multiplied tenfold though when it comes to your business exit.

To give you a feel for this, let me introduce you to Max and the beginning of his business exit experience.

One tough trucker

Max was as tough as they come, like a piece of gnarled old timber. And he had to be, as the trucking game was one of the hardest, most competitive businesses around.

Max had worked in his family’s trucking business since his early teens, and loved it. He took the business over from his dad in his late 20s and had steadily built it up over the last 40 years. For many years the business made solid profits, created jobs for many of Max’s extended family, and provided a good life for Max and his family.

I’d known Max for years. He was a larger-than-life character with a huge, booming voice. Although sometimes a bit gruff in manner, he was always full of energy and enthusiasm for his business, family and life.

I was catching up with Max to see how he was going, and today was different: Max was slumped in his chair. He looked drawn, tired and completely worn out. For the first time ever I thought Max looked old.

What’s going on, Max? I asked quietly. He paused a long time before answering, virtually in a whisper, Geoff, I think it’s time...time to sell the business.

I looked on in shock as a single tear ran slowly down Max’s brown, weather-beaten cheek. Even more surprisingly, Max didn’t even try to brush it away.

I knew how hard it must have been for Max to even think about selling the business, let alone to get the words out. The business was everything to Max. It was all he knew. He had thrown all of his energy, time and passion into it since he was a young man. It completely defined him as a person in his tight-knit regional community.

I just can’t do it anymore, he finally said. "It’s probably been coming for a while. I just didn’t want to accept it. It’s been getting tougher the last few years, but you know me, I’ve always been up for the challenge. Now it just feels really different.

"What’s really knocked me around though was the heart bypass last year. I just haven’t bounced back the way I thought I would. I feel a lot better physically now, but I just seem to have lost my spark.

I’ve also started thinking a lot about all the sacrifices we have made over the years. Nancy has always handled everything at home so I could go really hard at the business. I don’t know how long we’ve still got together and I feel like we should be making the most of that time. We have to start doing all the things we’ve been talking about for years. And then there are my grandkids, five of them now. If I just keep going in the business when will I ever get time to spend with them?

Despite my attempts to have this conversation with Max a number of times over the last 10 years he’d always firmly swept it aside with comments like, Too much to do, Don’t have time to think about that sort of stuff now, and, They’ll have to carry me out of here in a box.

The blunt truth is Max should have sold his business five years earlier. Over recent years a few things had happened that would significantly change the value and attractiveness of his business to potential buyers. While still substantial, Max’s business had declined in size and profitability. He’d lost some key contracts to the big trucking companies. He had also wound back his investment in new trucks and equipment.

Most importantly, though, five or six years ago there had been a wave of industry consolidation: the bigger trucking companies bought up as many good niche trucking businesses as they could. Max received a few serious approaches at the time but rejected them.

Looking back, it would have been the perfect time to sell. Max would have got a much higher price as well as an extra five years to do all the things he was now thinking so much about. Now he would be trying to sell his business to far less enthusiastic buyers who would quickly work out how keen he was to sell.

As expected, the next 12 months were an emotional roller-coaster for Max as he went through the stress and heartbreak of selling his business for a lot less than he expected in a marketplace that wasn’t all that interested in it.

Hindsight, of course, is a wonderful thing. Some business owners will sell too early and some too late. What is critical is getting the best outcome when you do sell. It’s much less stressful if you’re well prepared. You will have fewer regrets knowing you achieved the best outcome you could at the time.

WHY ARE BUSINESS EXITS SO STRESSFUL?

Unfortunately, Max’s experience is all too common.

Business exits are notoriously stressful events – right up there with divorce, serious illness and the death of a close family member.

Business exits usually involve a whole bundle of emotional issues that have often been simmering away for years. In the pressure cooker environment of a business exit they suddenly rise to the surface, often in volatile and unexpected ways that catch business owners completely off guard.

While each business exit is to a certain extent unique, there are common issues that arise and cause stress in many business exits. Understanding these issues and being ready to deal with them can have a significant impact on the success of your exit.

Here are some of the things that can trigger emotional issues once you start thinking about exiting your business.

Unlike the questions that gnaw away at you while you are running your business, you can’t ignore or put off these questions when you exit. They will be answered, either by you proactively dealing with them or by default if you ignore them.

A key aim of this book is to help you get the best possible answers to these questions. As we work through the exit strategies in Part II of this book, I highlight when personal and emotional issues are likely to arise, and provide guidance and strategies on how to deal with them.

KEY POINTS

•Even if you have a great business and are well prepared, most exits are stressful experiences.

•Business is emotional. What you go through starting, running and eventually exiting your business is something few people can understand unless they have done it themselves.

•Business exits bring lots of emotional issues to the surface.

•You need to be ready to deal with emotional issues to achieve a good exit.

EXERCISES

Which of the above issues concern you most when you think about exiting your business?

Pick one or two issues and note the key reasons why they concern you.

NOTES

THE UNCOMFORTABLE TRUTHS

Facts do not cease to exist because they are ignored.

Benjamin Franklin

A FEW THINGS YOU NEED TO KNOW ABOUT EXITS

Many business owners spend a lot of time planning how to get into their business. It’s not how you get into your business though, it’s how you get out again. And you have to exit your business to realize its full value.

A key factor in all business exits is having a good understanding of the things that could prevent you from succeeding. There are a few of them. I call them the uncomfortable truths. Importantly, if you know about the uncomfortable truths you can deal with them to make sure they don’t stop you achieving a successful exit.

Here they are:

1Most business owners aren’t ready for their business exit.

2You often have little control over the timing of your exit.

3Good business exits take a lot longer than most business owners realize.

4Your business might not be as valuable as you think.

5The world has changed. As a result, opportunities for business owners in many industry sectors to achieve good business exits are rapidly declining.

6The kids won’t be taking over the family business.

7There will be a virtual tsunami of baby boomers trying to sell their businesses over the next 10 to 15 years.

Let’s look at each of these uncomfortable truths. All of the issues discussed here will be addressed throughout the book.

MOST BUSINESS OWNERS AREN’T READY FOR THEIR BUSINESS EXIT

When I first started working on business exits I quickly noticed that:

•Most business owners aren’t prepared at all for their business exit.

•Many business owners are disappointed with their business exit.

•Business exits often happen as a matter of urgency, leaving business owners little time to properly prepare.

I initially found this puzzling as business exits are a common and regular occurrence in the private business marketplace. However, there are a number of reasons why most business owners aren’t ready for their exit:

•A lot of business owners only start spending time on their business exit once they have actually made the decision to exit.

•Most business owners have little or no experience in exiting a business. Unlike most other things you do in your business on a regular basis, exiting a business is like buying and selling a house. Most people only do it a handful of times over their lifetime.

•Most professional advisers who assist with business exits (such as corporate advisers, business brokers, lawyers and accountants) tend to focus on the transactional aspects of the exit.

•Due to the large amount of publicly available data, there has always been a lot of research done on stock exchange–listed public companies and the mergers and acquisitions market for public companies. In contrast, there is a lot less data available on family and privately owned businesses. As a result, there has been far less research on private business exits. In particular, there has been very little research on strategic business exits and how they are achieved.

•There are a lot of books and other material available on the logistics of how to sell your business but not a lot on how to achieve the best possible business exit. There are also still only a handful of really good books on strategic business exits.

•A lot of the knowledge and experience acquired by business owners who have achieved their own successful business exits doesn’t tend to get passed on to other business owners.

The above factors often result in some of the broader, and I think more important, aspects of business exits not receiving the attention they deserve. In particular, there is a lack of emphasis on preparing well for a business exit over a period of time and thinking through the emotional, personal and non-financial aspects of the exit.

YOU OFTEN HAVE LITTLE CONTROL OVER THE TIMING OF YOUR BUSINESS EXIT

Many business owners actually have little control over the timing of their business exit. The two most common events that lead to business exits are a business owner or close family member experiencing a serious health issue and an unsolicited approach being made to buy their business.

Other events include family issues such as a divorce, conflict with business partners and serious financial issues in a business.

An unprepared business owner combined with a significant unexpected event which precipitates a business sale is a potent and dangerous cocktail. From my experience it rarely leads to a successful outcome.

GOOD BUSINESS EXITS TAKE MUCH LONGER THAN YOU THINK

Even if you are among the lucky few who decide exactly when you will exit your business, most business owners significantly underestimate how much time is needed to properly prepare and how much work a good business exit takes.

In particular, it will take time to:

1fully prepare yourself for a good business exit

2actually sell your business

3get completely clear of your business.

Ideally, you should allow up to two years to prepare for your business exit. And depending on the nature of your business, it could take longer.

There are a few reasons for this:

•There is usually a lot to do to get your business ready for sale, particularly if you want to lock in special value for potential buyers.

•As you progress towards your business exit, you still have to run your business. It’s critical there is no decline in the performance of your business leading up to your exit.

•Some of the things you need to do require a period of time before you derive any benefit from them. For instance, if it is important to have audited accounts for a couple of years because you want to sell your business to a publicly listed company then the decision to do that needs to be made two years or more before the sale.

Actually selling your business can also take a lot longer than you expect. Once you have appointed your advisers and are ready to sell, it can take months – sometimes many months – before you agree the terms of your exit deal. And then, depending on the nature of the transaction, it could be several more months between signing the deal and completing it.

Finally, just because you have sold the business doesn’t mean you are now clear of it. Something we will cover in more detail in the get the best exit strategy in Part II of this book is that purchasers often require you to continue working in the business, sometimes for several years, under a performance earn-out arrangement. So not only are you still working in the business but you’re working flat out to ensure you get paid your full sale price.

In addition, you will also have provided a range of warranties to the purchaser about your business. So, for a number of years, there is the risk of the buyer claiming some aspect of your business was not consistent with your warranties and seeking compensation from