Leave Your Business By Design

If you're a business owner, your company is probably the most valuable asset you own. As such, growing and protecting the value of your business – and eventually monetizing such value – is enormously consequential to achieving your financial independence. Said differently, the net amount that ends up in your pocket after selling your business – after taxes, after fees, after paying off outstanding loans and bills, after everything – can directly, and quite literally, impact what you can and can't afford in retirement and how much you can and can't leave to your heirs and/or charities. Clearly, it's worth your time and energy to leave your business by design rather than by default. You can't afford to leave it to chance. 

When

Unlike your friends who retire from a job, you can't just retire from your business. Instead, you need to set your retirement date and work toward that goal. But don't wait to start planning until you're emotionally ready to retire (or you have to sell because you are burned out or have health issues). By then, it's too late because it takes years to prepare your company to sell for the amount you need. You have to first grow transferable value. And if you want to sell to your key employees or to your children, you need to get them prepared to step into your shoes. All of these efforts require a lot of time and hard work.

How Much

How much income do you need to support your desired lifestyle after you walk away from your business? How will you replace the income you used to earn from your business? It's important to accurately and realistically quantify your retirement needs and wants, your current resources (including the value of your business), and a shortfall. Then you should develop a detailed plan to bridge the gap. This will in turn compel you to know the value of your business and whether it can fully finance your retirement after you sell it. It will also tell you the minimum amount you'll be willing to accept from a buyer. 

To Whom

Who will be the successor-owner(s) of your business? Will it be your key employees? Your children? A third-party buyer? Do your key employees or your children have money to buy you out? (Hint: they almost never do.) If not, will you be able to come up with a creative arrangement to make it happen? Whatever the case, each succession option comes with its own set of advantages and disadvantages. You need to plan thoughtfully and with care (and several years in advance), so you can minimize the disadvantages to make your exit happen the way you envision it to happen. 

Read our Whitepaper: leave your business by design

The net amount that ends up in your pocket after selling your business can directly, and quite literally, impact what you can and can't afford in retirement.

Value Drivers

After you gain clarity around when, for how much, and to whom to sell your company, hard work begins. It's time to grow (accelerate!) transferable value of your business. In short, transferable value is what your company is worth to others without you. In other words, a successful transfer can happen only if your business isn't dependent on you. Thus, you must grow your business beyond your capabilities and change your role so your company can function and grow without you. It's a lot harder and more time-consuming than you might realize because it requires a radical shift from business as usual.

With that in mind, what makes your business attractive to a prospective buyer are strong value drivers because it's understood that strong value drivers contribute to healthy cash flows. All things being equal, a company with strong value drivers can demand a higher price than a company with the same profit/EBITDA, but with average value drivers. While not exhaustive, below is a list of primary value drivers.

// Strong, professional management team

// Repeatable and standardized processes

// Ability to scale without significant additional investment

// Diversified customer base

// Demonstrated growth strategy

// Recurring, sustainable and non-commoditized revenue 

// Healthy, growing cash flow that is sustainable, predictable and transferable

// Competitive advantage

// Strong financial controls and management

Business exit planning is often a complex, multi-layered endeavor that requires knowledge and  experience in other disciplines like law, tax, accounting, business valuation, mergers & acquisitions (M&A), human capital, banking, and others. As such, we collaborate with specialists in various disciplines as necessary and coordinate the activities of these advisors. We do not provide legal, accounting or tax advice. You should always consult your tax or legal advisors before taking any action that may have tax consequences. 

get started