What is the best way to exit a business? This is a crucial question that many business owners ask, especially those just starting their journey. Recognizing the need for a future transition is vital because, as business owners, we know we can’t run our businesses forever. The best way to exit a business is to understand and align your personal, business, and financial goals. This tailored approach ensures that the exit strategy supports your long-term objectives and provides a smooth transition.
Understanding the Best Way to Exit a Business
To answer the question, “What is the best way to exit a business?” we need to look at it through three lenses: personal goals, business goals, and financial goals. The alignment of these goals determines the most effective exit strategy for YOU.
Personal Goals
When considering personal goals, think about what you want to do with your life post-business ownership. Do you want to travel, invest in charities, start a new venture, or spend more time with family? Relationships are crucial, and we need to ensure that the exit strategy supports maintaining and nurturing these relationships. Ambition also plays a significant role. We often start businesses with a specific ambition or goal in mind. Understanding when you feel you’ve achieved your ambition is essential. This ambition drives creativity, effort, and the decisions needed to reach that end goal.
Business Goals
Next, we examine the business goals. To create the desired post-exit environment and conditions, we need to understand the likely valuation of the business at the time of sale. Knowing this helps us reverse engineer the profit or recurring revenue needed to reach our target valuation. We also need to consider the type of exit – whether it’s a private equity sale, a trade sale, a management buyout, or an intergenerational transfer. Defining what the business should look like at the point of exit, including the number of employees and locations, is critical. This clarity helps us build towards a specific goal.
Financial Goals
Finally, we look at financial goals. It’s essential to understand the amount of money needed to fund your lifestyle and personal goals after selling the business. Typically, selling your company is the most significant wealth event of your life, with about 70% of your wealth tied up in the business. We must consider after-tax income and how long it can sustain your desired lifestyle. Wealth, in this context, refers to income from the return on your assets, like property, equity markets, and bonds. We need to ensure that your investments and wealth can cover your earnings once the business is sold.
Creating a Clear Exit Plan
As a business owner, clarity on the desired outcome is the first step. This allows us to reverse engineer the steps needed to achieve that goal.
So, what is the best way to exit a business? It starts with understanding and aligning your personal, business, and financial goals. Then you can talk about what type of exit strategy is best for you.
Encouragement and Final Thoughts
Ambition is crucial. It allows you to create anything. The level of ambition will dictate the decisions and actions necessary to achieve it. Often, what you think is possible based on current knowledge can be vastly expanded with new insights. I encourage business owners to think big and explore the wealth of knowledge available. This can transform your life post-exit, enhancing your wealth, access to power, and generational security.
In conclusion, understanding and aligning your personal, business, and financial goals is the best way to exit a business. This approach ensures a smooth transition and supports your long-term objectives.