Building a successful business requires planning. Whether the businesses provides products, services, or ideas, it likely took years of refinement, study, and analysis to determine the best business model. A similar effort is required for successful Exit Planning.
Exiting But Not Retiring
Some business owners don’t have sufficient financial and business resources to retire fully. They might need to continue to work after selling their businesses. For these owners, a business exit is not a retirement but a headfirst dive into a pool of new challenges and opportunities. When they dive headfirst into that new phase, they want to make sure there’s enough water in the pool to keep them afloat after they’ve jumped.
Need for Adequate Planning Before Exiting
Other owners, before exiting, evaluate the resources they currently have versus the resources they will need to achieve a financially independent future. The difference between what you have now and what you need for financial freedom is called the Asset Gap.
Do you have an Asset Gap? Many owners believe that they have more than they will need or that their businesses are worth more than they are. Some owners become fully aware of their personal Asset Gap only after they are well into the exit process —sometimes too late to change course How does this happen?
Overestimating and Underestimating
It is common for business owners to overestimate the value of their business – i.e. what a third party would be willing to pay for it. Owners put a great deal of effort into developing their businesses over a period of many years. The business plays a large role in their lives. They are emotionally invested in its success. This emotional investment sometimes obscures the objective value of the business. Owners need to learn to step back, take an objective look, and even ask, how much would I pay for this business?
When owners look to find buyers, they can be surprised—and sometimes offended—when the value of the business to them doesn’t reflect the value of the business to the potential buyer. This is one of the main reasons that businesses fail to sell – the seller doesn’t have reasonable expectations about value. Unfortunately, some business brokers will feed these unrealistic expectations in an attempt to get the listing.
Underestimation of post-exit needs occurs when owners assume that they can live on less than what they currently spend. However, this is often unrealistic. Do you plan to downsize your house, get rid of your nice car, travel less, and avoid new hobbies or business ventures? Probably not.
Find an Exit Planner to Get Started Today
Do you know what your business is worth objectively? Do you know how much money you’ll really need to exit your business on your terms? Do you have an accurate estimate of how long you’ll likely live after you exit? Do you feel comfortable predicting how the markets will do far into the future? If not, contact us today. We work to help business owners find out what they have so that they can take steps to turn it into what they need.