As a consultant, I ask lots of questions when I have a preliminary conversation with a prospect. Many of those questions concern the business owner’s plans, goals, wishes, hopes, and dreams.
Interestingly, the vast majority of the business owners I talk to tell me (always in strictest confidence, of course), their plan, goal, and dream is to sell their business in five years. Not 6.39 years, not seven-and-a-half, not 4.2 years, but always FIVE YEARS – exactly!
That’s curious in its own right. But what’s really odd is, after that prospect signs and becomes a client, I’ll ask them again about their timeline for selling their business.
Whether I’ve worked with them for a year, two, or three, they tell me their plan is to sell in FIVE years!
They don’t say five o’clock in the afternoon on June 30, 2019 or the third Tuesday following the next lunar eclipse. It’s always a nebulous “five years” that keeps moving – keeps being pushed into the future.
Business owners spend a tremendous amount of time planning a new business. They spend time growing it – creating annual business plans, setting goals, looking at changes and improvements they’d like to make.
But they spend little or no time in thinking about or planning how to exit from that business when, in fact, preparing to sell a business or to transfer ownership to family members is as challenging as starting a business. Plus, it’s considerably more complex, challenging, and costly when not properly planned in advance.
Creating a plan to exit your business and to cash out on the single largest asset you will ever accumulate in your lifetime can require years of planning. It’s not particularly difficult. It just takes time.
In my opinion, the easiest way to create the plan is settle on a specific date that’s five years or so down the road. Then, working backward from that future date, you make lists – a list of what needs to happen in year five, what needs to happen in year four, then three, two, and one in order to be not only ready to sell and exit, but to build equity in the business, document systems, processes, and procedures, and to do whatever it takes to make it an attractive business to buy.
It’s like getting ready to sell your home. Often, there are things that need to be attended to before you put it on the market. You probably don’t schedule your first big open house until you’ve first cleaned clutter out of closets, painted a wall or two, and handled a number of other maintenance chores.
The bottom line is business owners often wait too long, thinking that tomorrow – or five years down the road – is a better day to tackle this complex issue.
Perhaps there could be another day, a better day, or better time to plan for selling their business – when the shop is moving smoothly, when their payables and receivables are in check, and when everything working perfectly.
But life is tricky. We never really know what’s in store for us.
The issue is, what if we, as business owners, don’t do the work now, someone else may need to do it for us? That someone else – a spouse, adult child, or an estate attorney – will need to do it. Their options may be to sell it for pennies on the dollar, liquidate it for the value of inventory and equipment, or simply give it away.[Written by Gil Effron]