Are You Mentally Prepared to Exit Your Business?

Business NOT as usual.

As a business owner, your professional and personal lives are intertwined and inherently connected to your business. With their identity largely tied to what they do professionally, many owners face confusing and conflicting emotions when leaving their company.

Selling a business can be one of the most significant decisions of your life. The first step to planning for your exit is finding mental readiness. Once you feel ready, you can move on to the rest of the planning process in a more objective manner.

Mental Readiness

Unless you have sold a business before, it can be difficult to recognize how all-encompassing the process can be. It is important to take a few big steps back, see the full picture, and reflect–then dive into your “why.”

Start here: which group do you fall into?

Group 1:

• You are involved in the daily operations of your business.
• You have not given much thought to what you will do when you retire or what comes next.
• You view your business as a job that supports your lifestyle.

Group 2:

• You are, for the most part, removed from the day-to-day operations of your business.
• You have a plan for what you want to do after your exit.
• You view your business as an investment.

The goal is to have peace of mind after selling your company. If you are in group two, you are on the right track! If you relate more to group one, consider migrating your thoughts and lifestyle to those of group two, in order to prepare yourself for your big exit.

It’s important to note that the stage of mental readiness is often where business owners can get “stuck,” because they have trouble finding the time to transition from group one to group two. Moreover, transitioning from group one to group two is necessary to prepare your business to sell, especially if you don’t plan to stick around after. Your business must thrive without you, in turn allowing you to thrive outside of your business.

A great first step for the group one owners is to start creating a “what’s next” plan. Many business owners do not understand how much their sense of self and place in the world is centered around their company, so start to plan your life without it.

• Do you want to:
• Volunteer for a nonprofit or serve on a board?
• Join a tennis league?
• Spend more meaningful time with family?
• Travel?
• Sleep until 11 am every day?
• Start another company?

Moving into group two means looking at your life beyond your business.

The exit planning process.

When you’ve started to wrap your mind around mentally detaching from your business, it’s time to start thinking about the terms of a potential deal and your goals:

How much profit do you need from the sale?

To determine how much it’s going to take to live your ideal lifestyle post-sale, you’ll need to work closely with a wealth advisor who has expertise in working with business owners. Once you know what you need from your exit after taxes, your lawyer or M&A advisor can help ensure that the terms outlined in any Letter of Intent (LOI) are aligned with your goals.

What type of transaction do you want?

Sure, you could sell 100% of your business and walk away, but that’s not the only option. Would seeking a partnership be better suited for you? Or will you pass ownership onto family members? What terms are you looking for?  Making this decision will also help determine how your personal finances might be affected.

What is your ideal timeline?

If you landed in group one, it’s important to set a goal for when you want to sell your business so you can begin to plan for a successful exit and achieve the highest valuation. Is it in 2 years? 5 years? This gives you the opportunity to get clear on your business strategy and gives you enough time to achieve higher profitability and become more operationally sound (thus more attractive to potential buyers) before the sale.

Wherever you are in the process, consulting with a financial advisor who specializes in Exit Planning is a great place to begin.