Have you ever thought about what you’re going to do once you’ve sold your business? Whether you’re just starting or you’re ten years down the road, there is no wrong time to start planning your business exit strategy. For most business owners, their business is their baby. So, why even sell? Simply put, business is risky, and you wouldn’t want to sell only when you’re forced to and the value of your business is not as it should be. Michelle Seiler Tucker urges you to start thinking about when to sell your business and what to do after that. What are you passionate about? What are the things you have missed on? What kind of life do you want after you sell? It’s time to do a seller sanity check and ask yourself these questions before it’s too late.
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Seller Sanity Check: When And Why You Should Sell Your Business
In this episode, we’re going to talk about the Seller Sanity Check, when and why you should sell your business. I always tell my clients that the biggest mistake that business owners make is they don’t plan their exit. They don’t think about selling until an external or internal catastrophic event or until something like COVID has occurred or a major hurricane, a recession or internal health issues, divorce or partner disputes. There are all different reasons for selling, but most business owners are busy working in their business that they don’t think about selling their business.
The problem is when you think about selling, then when a catastrophic event has occurred, your business is typically going downward, not upward. The buyers want to buy businesses that are turning out upward. They want to buy good solid businesses. They don’t want to buy something that’s going down. You must plan your exit. We talked about this in one of the first episodes called the ST GPS Exit Model. If you read that one, please go back and read. What we’re going to talk about as a Seller Sanity Check and how you come to terms with, “Is this the right time to sell your business?” The when, how and why?
I want you to think about your business, how long you’ve been in business and start to make a plan. When do you want to sell that business? What do you want to sell that business for? Who you want to sell the business to? Don’t hang on to the business so long and ask the problem. It used to be that 85% to 95% of businesses will go out of business after being in business for the first five years. Startups are at great risk. Now, startups are not at great risk. Guess who’s at great risk? Those business owners had been in business for ten years or longer. Those businesses are dropping like flies. Seventy percent of those business owners are going out of business and are going out in business after being in business for ten years and that’s out of 27 million businesses. Do the math.
The biggest mistake that business owners make is that they don’t plan their exit.
If you’re reading this and you’ve been in business for ten years or longer, you’re at risk for going out of business. Plan your exit. Think about what you want from an exit. If you sell your business, what would you do on the other side? I always tell my clients, “You can’t plan your exit until you plan your beginning. You can’t exit your business without knowing what you’re going to do afterward. Do you want to retire? Do you want to travel the world? Do you want to buy another business, acquire another business and create another masterpiece?” It depends upon the age group too. I have a lot of clients that come to me and said, “Michelle, I’m 60 years old. I don’t want another business. I want to finally retire and enjoy the fruits of my labor.”
You need to figure out what you want to do next because if you don’t figure out your beginning strategy, you’ll never go through with your exit strategy. I’ve worked with my clients to try to help them come to terms with what they want to do next because let’s face it, what you were once passionate about, what got your juices flowing and what you were excited about is probably not what you’re excited about anymore. It’s because many of us bury our passion and the things that excite us underneath our commitments. What we have to do for our family, children, spouse, friends, and business.
These things that we were once passionate about that we love to do have now become buried under our obligations of what we have to do. I always tell my clients that they need to do some soul searching and figure out, “What is it that you love to do when you were a kid? What is it that you would do for free because you love it so much?” Find out what that is. I worked with a couple that was selling a business and they were back and forth and most of my clients were back and forth. Most of my clients are not like, “I absolutely want to sell.” Most of them were on the fence and the problem with being on the fence as if you haven’t figured out what you’re going to do next you’ll never sell the business. You’ll never pull the trigger. You’ll walk away from deals, buyers and the business won’t close. I always tell my clients to stop and think about what it was that you once loved? What you would do even if you weren’t getting paid? Think about your core competencies and your strengths. What excites you? What motivates you? I always tell my clients to sit down and put together a list.
There was this company I was working with that was selling a business and they were on the fence. One minute they wanted to sell, the next minute they didn’t. This went on for about six months and finally, they call me and it was late, probably around 12:00 at night. They said, “Michelle, I had an epiphany. I now know exactly what it is I want to do.” I go, “What? I’m excited. Couldn’t that wait for the morning? What is it that you want to do?” They said, “As husband and wife, we’ve always dreamed that only that bed and breakfast, that was our dream. That was a high school dream and we never had the time to do it. We never had the resources and money to do so. From the proceeds of the business, we decided that we’re going to buy or start Airbnb in Vermont.” Once they figure that out, they took the next offer I bought them. It was a good offer. They accepted the next offer I bought them and it went ahead and closes on their business. Now, they’re living happily ever after in their bed and breakfast.
I sit down with my clients and I also haven’t put together a list that’s called What I Want and What I Don’t Want. I have them start with the I don’t want section. Some of them will tell me, “Michelle, I don’t want to be in my business 24/7. I don’t want to have to deal with employees anymore and all the headaches. I don’t want to be the one trying to find the money when a catastrophic event has occurred and there is no business.” I tell them, “What do you want?” They’ll say, “If I don’t want employees anymore, I want to be employee-free.” I’ve had some say, “I don’t want to work 24/7. I want to take vacations. I want to take more than a weekend vacation. I want to take 2 or 3 weeks at a time. I want a stress-free life and financial stability. I don’t want to manage anybody anymore.”
It’s important to get crystal clear on what you want and what you don’t want. When you’ve become crystal clear, get rid of the I don’t want section. I always tell my clients to have a little ceremony. Throw it in a fireplace, set it on fire, do something fun, and get rid of what you don’t want and only focus on what you do want. Once you do that and get crystal clear of what is important to you and your family, then you’ll be able to make the decision of do you want to sell or do you not want to sell? Plus, it will help you to remember what it was that you once loved.
A lot of business owners are stuck in their business and they don’t like it anymore. Some of them hate it. The problem is when you don’t like what you do anymore when you can’t stand to go to work and you can’t stand running your company anymore, you’re going to do a terrible job and the company is going to continue to go downward. Before that happens, let’s work on transitioning your company and legacy to someone else. Get crystal clear on what you want and what you don’t want. I always tell my clients that it’s important to come up with what I call the Seller’s Sanity Check. We have a Buyer Sanity Check but we also have the Seller Sanity Check.
On the seller side, it’s important to know how much money you need. How much money does it take for you to live on month-to-month? How much money do you need from the sale of your business? You would be shocked by how many business owners are completely oblivious to this. They have no idea. They have a wish list. They say, “I want to sell my business for $50 million.” If their business is worth $1 million, then they can’t afford to sell their business for $1 million because it won’t support their lifestyle and what they want to retire on. It was important to get crystal clear on what you want and need. What do you want to do and you don’t want to do, but more importantly, how much money you have to retire on?
If you want to retire, how many years do you have left? What does that monthly cashflow that you need look like? If you want to buy another business, how much money do you need to afford another business? If you want to create another masterpiece, how much money do you need for that masterpiece? Most business owners have no clue what they need. I have my clients sit down and go through it so they’re crystal clear because it’s not the price I get you for your business, it is what you walk away with and what can sustain your lifestyle. That’s the most important thing and that’s different for everybody.
Get crystal clear on how much money you need, because here’s the bottom line. My clients will say, “Michelle, I need $50 million. The business is worth a million.” A buyer is not going to pay you what you need to retire on. A buyer is not going to pay you what you need to start another company on. A buyer is not going to pay you what you need to send your kids to college. Buyers will pay for worth, they buy synergies or buy a business based upon the value that it brings to them. They’re not going to overpay unless I see some great synergies that they can ROI and monetize.
You can’t exit your business without knowing what you’re going to do afterward.
The business has to be worth what you’re asking for from a value standpoint. It’s not based upon what you need to retire on, it’s based upon what it’s worth. However, for me to walk with my clients, I got to make sure we’re realistic and the value of the business is going to align with what they need to exit their company. The next part of the Seller Sanity Check after you become crystal clear on how much money you need monthly and annually, also look at it and say, “If I sell my business, am I going to have to go out and get another job?” If so, then you don’t might not want to sell your business and this is not the right timing to exit your company. There are other alternatives that we can look at. That’s number one, the money piece.
Number two that is important to most sellers is, will the new owner take care of my employees? Some sellers have a hate relationship with their employees and many sellers will love and cherish their employees and that’s what got them to where they are. Many sellers will not exit their business unless they know their employees are going to be taken care of. I have a plastics manufacturing business and the owner is from China. She said, “Michelle, our employees have been with us for decades. We will not sell it unless we were guaranteed that our employees can stay.” That’s wonderful. However, the issue with this particular business is that they kept raising their employees, but they’re in a competitive industry that doesn’t allow any room for error and it doesn’t allow any room for excessive overhead and they have excessive overhead.
The new owner is going to come in there and have to replace some of the employees and add new machinery in order to reduce costs so they can make a profit. Otherwise, they won’t buy the business and the owner hasn’t sold because of that and that’s okay. That’s her choice. That’s important to a lot of business owners is, “Are my employees going to be taken care of? Who is the buyer?” The other thing is, “Are my clients going to be taken care of?” There are many owners who love their clients like me. I love my clients. Are my clients going to be taken care of? One of the most important things, “Will the new owner grow my legacy? Will they continue to grow my business?” Many of you have built your business for years and decades. You’ve poured your heart, soul, energy, and efforts, everything you have, you’ve poured into your business.
Many of you have made huge sacrifices along the way. You’ve missed your kid’s baseball and soccer games and Christmas plays. Your business is your baby. Many business owners want to make sure that their legacy will continue to grow. These are some exercises and some questions you can ask yourself and take yourself through, “What do I want? What I don’t want anymore? What do I need from the sale of my business?” Many times, we’ve been able to structure ourselves where the owner gets upfront, they get so much per month with interest. That monthly payment allows that owner to be able to sustain and even have some money left over for luxury items, vacation, and travel, for things of that nature. They have that money left over to do that. It’s important to figure that out and work with your advisor so they can help you figure that out because only then will you know if the timing is right for you to exit your business.
To recap, get clear on your business, get clear on what your hobbies and passions are? What you once loved to do? What you would love to do regardless of money? What are your core competence and your skillsets? A lot of business owners are like, “Michelle, this is my core competency. I’m good at this, but I’m doing that. I would love to do this, but I have to do that.” Get clear on what you want and get clear on what you don’t want. Tell that piece of paper up, celebrate what you want, focus on that, and then take yourself through that Seller Sanity Check to figure out what it is that you need to get from the exit of your business. Thank you. It’s been an absolute pleasure and I’m looking forward to seeing you next time.
- ST GPS Exit Model – previous episode
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