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Edition 133 – Exiting

Written by Dean Robinson.

I caught up with a liquidator colleague of mine the other week. Amongst other topics, we got around to talking about the state of business generally and what each of us is seeing in our respective fields of expertise. In a nutshell, some of what we’re observing is the same and some is different. 

The conversation moved onto business owners exiting their businesses. I’ve long held the belief that business owners, generally in the 45 to 55 year age bracket, get to a point in their business life where they’re bored. Invariably, they end up switching off from the business, mainly as a result of the fact they’ve been doing the same thing, every day, for so long, without challenging themselves to do or think differently.

I’m actually convinced that some of these people:

  1. Have inflated opinions about the value of their business.
  2. Believe that coasting until their retirement date is the best strategy to adopt.
  3. Get to a point in life where they fail to see their business as something that needs to be nurtured and tended to, much like a garden.

If you’re thinking about exiting your business, you really only have four options up your sleeve.

  1. Sellout to a cashed up operator who knows about your business and your industry – and is passionate about them both.
  2. Merge with a like minded operator – but remember, it is a business marriage which means you need to align your values in a one day session first up before you start heading for the altar.
  3. Graduate a candidate through the business – so they learn your business, your way and you have the opportunity to blood them into the lessons of all aspects of your business, without allowing them to sink the whole ship overnight.
  4. Shut up shop – which is often what happens merely as a result of business owners not thinking through their exit early enough, and leaving their run too late.

Now, whilst there are four options available to you, in my opinion, the timing is just as important as the option you choose.

In my 30 years of working with family businesses, here’s what I’ve observed:

  1. You need to be thinking about your exit at least at age 50 – and/or:
  2. You need to be planning your exit at least 10 years out.

Now, if you, like me, love what you do, then age 50 may be too early in your life to be thinking all this through. My plan is to be doing what I do for another 20 years, not because I have to, but because I love what I do, every day, with the people that I engage with.

Planning ahead by 10 years, on the other hand, is something that is significantly overlooked by owners of family businesses.

You need to plan your exit at least 10 years out for many reasons but here is the main one. If Plan A doesn’t work, you need time to instigate Plan B.

And, before you start thinking planning 10 years out sounds pie in the sky, I can tell you I’ve seen this exact situation inside a family business that I know – and Plan A did indeed fail. By the time Plan B succeeded, it was about 7 years after Plan A was first hatched. Thankfully, that family business owner had commenced the process in their early 50’s, so that by the time Plan B succeeded, they’d just tipped 60.

So, as you ponder your Wednesday, take a moment to also ponder:

  1. Which of the four exit options you might be looking at right now?
  2. Whether or not you’ve created enough time to exercise the option that will generate maximum value for you on your exit.

This Week’s Tip

“50 is the best age to start thinking through your exit. 60 is starting to leave it tight. 65 and you’re in a critical condition. 70 and older and you may have just about trashed any legacy or financial value there ever was in your family business”.