Easing Into Exit Planning
It’s more than preparing a business for sale, it’s about changes to an owner’s life. It’s a personal, private and often an emotional set of decisions.
There are ways to ease into it without feeling like you are being kicked out of your business. An owner needs to feel financially, emotionally and mentally prepared for the changes.
Naturally, we find owners who struggle to let go. While owners understand they need to let go, they often just aren’t sure how to start. Craig E. Arnoff coins this well when he says “owners have made an enormous investment in terms of emotion, time, money, thought and energy and his/her identify has become rooted in the enterprise.”** In Craig’s book Letting Go, he shares a number of reasons business owners have given him for not letting go and the underlying root causes.
If exit planning is left too long, we can run out of time and leaving the business can feel like ripping off the Band-Aid. One day you are in and the next day you are out – this can throw owners into a tailspin of regret and a feeling of great loss.
A great exit isn’t just about monetizing what you’ve built - it’s also feeling positive about the future. We can prepare ourselves to step away by creating a plan to ease into it. We break letting go into a 3-step process:
1. Determine what you are specifically attached to. What will you miss the most when you begin to step back? Where do you still have excitement and passion and where don’t you? When do you feel the need to control decisions and why?
This is unique to each owner. For some owners, it may be making deals and strategizing about the future, while for others it’s leading people or making a difference with customers.
When you can clearly outline what you are and aren’t attached to, you bring important awareness to your needs, which can then be accounted for in your plan.
2. Structure changes over time. Depending on your specific succession strategy and deal parameters, often you can shift your focus. Here are a few options we have seen implemented successfully:
Alter your role: first remove the areas you don’t particularly love and over time, shift accountability in areas you enjoy. For example, you may want to change your role to be the chairman or a board member guiding strategic decisions and move away from day to day involvement.
Merge with a younger strategic partner: assuming you have a shared vision of the future, a merger can provide great succession options and allow greater flexibility in shifting your focus. As partners, you grow and evolve the business together and, in time, fully transfer leadership to the younger partner. It’s critical to clearly define roles, decision making and a succession timeline for this approach to be effective.
Sell and stay – where you monetize part or all of the business and stay on in a defined role. If the vision is aligned, roles well defined, and your involvement is clear, this can provide a nice offramp. And well this sounds great in theory, we often see owners pull the plug earlier than expected because it’s hard to shift from being the owner to being an employee. Careful planning and upfront expectations are very important when using this option.
3. Shift our mindset – we often make letting go a negative mental construct. It doesn’t have to be. Consider beforehand, why do I need to hold on? What is the worst thing that could happen if I let go? What is on the other side of letting go?
It’s important to exit to something. No one wants to be known as the “former owner of XYZ company”. We can’t go from being a busy, involved business owner to sitting at home doing nothing. Start mapping out what you will do once you have more time, more freedom and more money. Many owners we work with have no plan to retire in the traditional sense – just onto the next adventure.
While exit planning often focuses on the technical aspects of valuation, tax planning and agreements, it is critical to also plan for the softer aspects like letting go. By creating a personally tailored off ramp from the business, over time, owners can feel more prepared for the next chapter.
** Aronoff, C. (2011) Letting go: Preparing yourself to relinquish control of the family business. Palgrave Macmillan