Exiting your business on your own terms
Stephen Covey famously said, “Begin with the end in mind.” That sounds wise– but most entrepreneurs I know don’t do that. They started, inherited, or acquired a business opportunistically– with no particular clarity about the future. The first few years are spent learning, doing, and trying to not fail with such intensity that imagining how and when they might exit would seem like an impractical use of their extremely limited time.
People are also quick to tell you that most businesses fail in the first few years. That’s not so helpful.
To me, the more useful question is, how many entrepreneurs get to exit their business on their own terms? And when and how do you begin to think about that?
Exiting a business on your own terms means different things to different people. It can mean selling it to fund your retirement or next venture with the proceeds, handing off the business to your children, or quietly shutting down and walking away once you’ve had enough. There are more options than most people realize, including converting your business into a worker-owned co-op or trust, and perhaps retaining a role or stake in it.
In our (capitalist) society, most people imagine that selling their business (and getting that golden paycheck) is the ultimate measure of success for an entrepreneur.
Personally, I prefer Maya Angelou’s definition of success: “Success is liking yourself, liking what you do, and liking how you do it.” I’d rather see someone exit their business on terms that meet that criteria of personal satisfaction– without taking a bath financially.
I have exited two businesses successfully (both sales), and now I coach business owners who are trying to plan a smart exit, too. Here’s what I see often gets in the way of a successful exit.
Trying to sell when you’re in a pinch
I encourage most business owners I work with to grow and run their businesses as if they will sell it even if they have no clear intention of doing so.
A business that’s managed with an eventual sale in mind is more likely to have a balance sheet and income statements that demonstrate value to potential buyers. It's got a cash cushion that has allowed it to weather the unexpected. It’s got a team of people who are invested in its success– not just the owner holding it all together.
If you wait until you’re ready to sell to start thinking about how to run your business, potential buyers may smell desperation and you may end up compromising on the deal.
Building a stable and profitable business that will allow you to exit on your own terms takes time. It will be a lot more manageable if you treat it as a marathon, not a sprint.
Making your business dependent on you
Many small businesses are literally created out of nothing by a charismatic visionary. As they grow a company around that vision, they often remain in command of many of its functions and can struggle to let employees function independently. But if that owner wants to exit eventually and have the business continue on, then building a company that can clearly function without them calling the shots will be key.
Magical thinking about the business’s value
Many owners dream about selling their businesses and making enough money to retire, buy a boat, or live out other lifelong dreams, and these fantasies guide their sense of how much their business should be worth. Those fantasies can make it challenging– even disappointing– when the business is valued and realistic offers come in. Rather than let your dreams guide your sense of what the business is worth, do some homework to find out how comparable businesses are valued and sold. Get to know the mergers and acquisitions (M&A) specialists in your industry, follow their blogs, and keep your dreams grounded in reality.
