Separating yourself from your business – and your business from over-reliance on you – is the challenge that faces all business owners who have built their business, brick by brick.
Are you planning on leaving your business soon? If so, what steps have you taken to ensure that your exit runs as smoothly as possible, and that you get the outcome(s) you want in order to ensure a happy and prosperous retirement?
In many instances you may have established your business as a means of independence and freedom but, as you head towards retirement, the business may now be reducing your options, especially in cases where the primary source of retirement funds is dependant on the sale of your business.
So what are the options available to you? The following is a guide to six tactics you should consider if you plan to exit your business in the near future.
Tactic 1: Know your end game
If you know what you want from the business and life, then you should start with the end game in mind. If you plan to leave the business then you need to develop a plan for life beyond the business. Successful 'exiters' see their business as a mechanism or vehicle that fulfils a particular role in their life and they are very clear about what that role is. They know what is important to them in life, including aspects such as wealth, freedom, family and recognition, and they have a rough map for making it happen.
One of the biggest sticking points for business owners is a lack of willingness to take action, if that sounds like you, but you have desires to enjoy retirement, then it’s advisable to take the following actions:
- Decide on what you want out of life
- Assess what role your business needs to play in that decision
- Identify and address any fears you may have
- Find other ways of using the skills you’ve developed over the years
Tactic 2: Map your exit options
Typically, once an 'exiter' has done some thinking about their 'Personal Exit Plan' they then consider the options that will enable them to extract themselves from the business.
It’s important to note that when considering options, it is possible to generate more than just one option. This relates to the fact that the future is unpredictable and a range of possibilities are required.
The options available to potential 'exiters' include:
- Selling to an existing business partner
- Acquiring a new business partner
- Handing over to family member
- Recruiting a General Manager
- Training a staff member as a General Manager
- Staff buy-out of the owners
- Full sale to larger competitor/industry partner
- Full sale to another entity
- Close business and sell assets
- Close business and maintain income stream from assets (especially property)
Tactic 3: Attitude shift
A common theme among successful “exiters” is that at some stage in their business life they had been on the brink of failure and decided to commit to dramatic change. I’m not suggesting that you take your business to the brink of extinction just so you can develop the skills required to successfully leave it, you can however learn from those who’ve been there and seek to change your attitude toward the business in the face of the challenge to exit it in a successful fashion.
Take ownership of your situation and be prepared to personally change in whatever way necessary to get a better result from the business. Commit to more extensive reading and research. Self-education is an important factor in success and this can include seeking mentors from outside your industry. Then commit to being a leader rather than a worker within your organisation.
Tactic 4: Diversify, diversify, diversify
Successful exiters often use diversification to reduce the risk of not getting the outcome they want from the business. Three key areas where you can apply the principle of diversification are:
- Assets and income:
Make a clear and deliberate attempt to diversify your assets and income, and ensure that all your assets aren’t connected to your business.
- Skills base:
Invest in the necessary resources and effort to ensure that your business is not reliant on one or two key people.
- Client base:
Too often we hear of businesses that have gone under when a major client has withdrawn a contract or changed suppliers. Work diligently toward diversifying your client base. Make it a priority, and part of your business strategy, to gain other key clients.
Tactic 5: Build a 'carrot'
The majority of 'exiters' identify that their best route to exit is the successful sale of the business. In your case, the ideal scenario may be to be bought out by a larger competitor or industry player. The logic being that the larger the organisation buying you, the deeper their pockets and better the odds of getting a good price.
So spend time researching what would make your business enticing to a larger organisation. Be prepared to go to the extent of pinpointing which organisations would be likely buyers and then build strategic alliances with those organisations.
The key features that make your business more enticing include:
- A simple ownership structure
- Systems and processes that easily click into a corporate structure
- Operation manuals, procedures and quality control procedures
- A high profile brand with substantial brand equity
- Recognised intellectual property
- Attractive $$ turnover levels
- Healthy financial performance ratios
- Clear competitive advantage
- A retention strategy for key staff
Tactic 6: Reduce the reliance of the business on you
Ask yourself if you have a 'Personality' business. If so you’ll need to put considerable effort into reducing the extent to which the business relies on you and your personality for its success. A business that is reliant on the owner’s personality shows the following characteristics:
- The business name typically contains the owner’s name
- A large percentage of the clients will only work with the owner and request the owner by name
- The business owner defines themselves by the industry they are in (eg “I am a doctor” instead of “I own a medical practice”, or “I am a gardener” instead of “I operate a gardening business”)
- The business owner believes they are the only person who can do their job to an appropriate standard
- The owner spends the vast majority of their time delivering services to clients
Does your business have these characteristics? Having a personality-based business dramatically reduces the options available to you for exiting the business successfully. If you just want to eventually just shut the business down and walk away then it’s not so much of an issue. However, if you would like to sell the business, hand it onto someone or set it up as a source of passive income then you may confront some challenges.
If the business is “all about you” then you are compelled to stay with the business. This is an attractive proposition for you if you want to work less. It is also an unattractive proposition for investors who want to buy a business – not you so it may be worthwhile undertaking the following steps:
- Consider re-branding
- Replicate what you do so well
- Systemise your processes
- Recruit and develop the ‘right’ people
Independence and freedom to make your own decisions may have been two of the major motivators for you in establishing your own business. However, through an inability to plan your exit from the business, you are giving up your right to decide when you can leave and to choose the kind of lifestyle you want in the future.
The tactics are based on research undertaken by Kirrily Dear of Sydney-based business consultants, Eyes Wide Open.