Your business may be ready for sale, but are you?
April 21, 2021 - 5 minutes read
Posted by Xentum
Dominic Baldwin, CEO, says too many business owners don’t truly know how much they need for life beyond the exit when they sell.
Building a business worth buying is no mean feat. It takes time, effort and energy on an extraordinary scale. Some of the clients we work with have nurtured their businesses for longer than they’ve nurtured their children. So, it’s no surprise that they want to be handsomely rewarded at the end of it all, with a nice fat cheque from their business sale.
One of the problems is that business owners looking to sell almost always come up with an arbitrary figure they want to achieve. Either an estimate of the business’ value or an estimate of what the owner wants/needs to receive.
Perhaps this sounds reasonable to you. But in 20+ years in the industry, I know that what is truly required is something quite different: a clear picture of how much the owner requires from the proceeds of the sale in order to live the life they desire post-exit.
An inverse approach
Successful businesses are built against a plan. The same goes for successful post-exit living. Sadly, it’s rare to meet a person with a personal plan as detailed and well-regulated as their business plan. Life often looks like this – with much time spent on business planning, and little time spent on personal financial planning.
Bringing discipline to personal financial planning pays dividends in the long-run. Guiding people through these thought processes has always been a fascinating experience to me.
Whilst conversations usually start with a focus on the material possessions most of us desire, when you peel back the layers there is always more depth.
For many people, having enough financial security to be able to act kindly and generously towards people they know and people they don’t is an unvoiced, sometimes unconscious, goal. They want to be able to go on fabulous family holidays or buy a holiday home their friends and family can enjoy, not think twice about the cost of spontaneous fun experiences and to be able to leave a legacy for their loved ones.
By concentrating on what we would call an ‘inspired vision’ for the future, the financial side of life will fall into place.
This is the route to true financial freedom. Instead of living to your means, you plan and arrange your means to the lifestyle you wish to live.
You may think: “I’ve already been doing this for years, but I still haven’t got my yacht!”
The good news is, whilst you still own your business and enjoy an income, you have the power to shape your future (and what you think you want may not be what you actually want).
Building a picture of long-term lifestyle goals isn’t as easy as it sounds. It requires detailed analysis of what you want to do with your life when you’re no longer running your business. You have to look beyond the numbers.
Vague concepts like ‘travel the globe’, ‘buy a yacht’ or ‘teach a grandchild to sail’ need to become crystal clear.
It also requires a map of obligations and commitments you want to keep, like university fees or helping your children get onto the property ladder. And finally, to live without financial fear requires an element of contingency planning: being proactive on difficult subjects like how dependents would be provided for in the event of an untimely death or critical illness, especially if you’re the person who is creating the wealth and stability for your family’s future.
Life beyond the exit
If your financial arrangements are organised around your lifestyle goals, you can enjoy much greater financial freedom and security.
Because you know how much money you need now and for the future, you can enjoy the wealth you derive from your business sale without worrying that you’ll run out.
The psychological impact makes this fact worth its weight in gold. This is the difference between a life well lived and regret at things left undone through fear or anxiety about money.
When we understand how we want to live in the short, medium and long-term, it’s far easier to understand the role a business asset plays.
The sale may be a main source of income, or it may be one of the jigsaw pieces that creates the overall picture of your finances, taken into consideration alongside investments, pensions, property or inheritance.
If these factors apply, they will affect the value you need to derive from your business sale and help you understand the right approach and timing for your exit.
The point is that working out your ‘big number’ you need to achieve from your business sale is as much a science as it is an art. It requires analytical thought and inspiration.
When you button-down this figure, then it’s far easier to make good decisions in the lead-up to an exit. The value has been logically calculated to benefit you.
- You know how much your business needs to be worth – so you can concentrate on building the asset to the right value.
- You know when it’s the right time to sell – you know you are working with a purpose; you know you are selling for the right price at the right time, it removes uncertainty.
- You have a clear vision of life beyond the exit – you know what you’re going to do when you’re no longer working. When you’re growing a business you may dream of being able to lie in on a Monday morning, but in my experience, that pleasure quickly wears off!
In summary, without a plan, it may be possible to sell your business for more money than you need. But if you don’t know you have more than you need, you remain shackled by uncertainty and limitation.
And after years of work to build a business of value, and with life limited to a mere 80+ years if we’re lucky, who wants that?
What to do next
If you are a business owner planning to exit now or in the future, please click here to select a convenient time & date for an initial discussion with Dominic.