Key Metrics in Planning a Business Sale or Exit
Posted on July 2, 2020 by Dennis Niven
Every business runs on metrics. It is an old saying, “You cannot manage what you cannot measure.” Therefore, this article is focused on some exit metrics that you should be measuring and monitoring as you make plans for yourself and your business.
Exit Metric #1 – Who Will Be the Future Owner?
Who might the future owner be? Who is it likely to be? Let’s begin with a simple question: Who would want to own your business after you? If a number of companies and/or people jump to mind, then that is a good thing. If this is a blind spot for you and your business, then it is the first area that you need to focus on. Without knowing who would want to own your business after you, it is difficult to design your business to be attractive to another person.
Exit Metric #2 – What am I Going to Do Next?
To avoid seller remorse, you need an answer to the question, “What am I going to do next?” Will you be fulfilled once you no longer own your business? Do not underestimate what your business means to you by keeping you active and productive. Try this: create a blank calendar and begin filling in what you would be doing all day with the free time that you have achieved with the exit from your business. Once you can get past the recreational activities that you enjoy and into some meaningful pursuits that you look forward to engaging in, then you will be well on your way towards knowing what you are going to do next. Build on this metric by returning to this exercise every few months. Include your spouse in this conversation.
Exit Metric #3 – Might My Exit Not Be a Sale?
Depending on your mental and financial readiness to leave your company and retire or to begin another business, the right might not be a sale, but rather a management buyout by key employees, gifting to family or charity, an Employee Stock Ownership Plan (ESOP) or a private equity recapitalization.
Exit Metric #4 – Can I Afford My Desired Exit?
Most privately-held business owners are dependent upon their businesses to fund their lifestyles. This includes not only W-2, salaried income and distributions but also perks that owners take for being the boss. If you do not know whether the value of your business once sold will be enough to fund your continued lifestyle, it is very difficult to plan your exit because you are stuck in your business from a financial perspective. This situation is made more complex by the fact that a privately-held business has, at all times, a number of potential exit values depending upon which of the exit options in #2 above fit your goals. Understanding this range of values, and what they are, is a key metric to a successful exit.
Exit Metric #5 – Have I Prepared My Key People for a Transition?
Many owners fear the consequences of telling their key people that a change in ownership will occur. However, there are two reasons and ways to have this conversation. First, discuss the fact that you are getting older and won’t be around forever and that your key peoples’ careers are staked to your decisions. Second, discuss the fact that some new energy, and perhaps some new capital, may help the business reach its potential. Both of these conversation starters help open the discussion about a future transition with employees.
Exit Metric #6 – Have I Assembled a Team to Help Me Through My Exit?
Going it alone can be hazardous to your wealth. There is so much complexity involved with an exit plan that even the experienced professionals never try to do it by themselves. A team of trusted, trained and competent advisors is critical to your success. At B2B CFO®, we call this our Success Team™. Begin assembling that team today.
By following these exit metrics, you will track your progress and begin to focus on the key aspects of your exit and succession planning. Get these in writing and refer to them often. Over time you will see that these exit metrics empower you with answers to a customized solution for your unique needs.