Business Insider: It’s never too early to plan your exit

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Last month, a client told me he wants to get his exit plan figured out ASAP.

He wants to enjoy his new grandkids and take some free time now. He probably should have started this process a while ago. How about you? Where are you with planning your future?

It’s never too early to start: The best time to start is 10 years out, and the next best time to start is right now. Here are some important questions to get started:

Who’s your buyer?

Are you selling to family or nonfamily? Is it someone you already know and trust or a team of leaders already in your business? Or, is it an outside buyer who will pay the highest price — be it a strategic buyer, an investor or an investor/operator who will run the business?

Even if you’re not sure, decide who it won’t be, and your vision will start to clarify.

When do you plan to sell?

Will it be more than 10 years out, in five-plus years or much sooner, like in a year or two? Knowing the time frame will dictate what kind of actions you need to take and how quickly.

How much?

Do you have a number you need to earn for the business? If so, what is your business worth now? Or, are you simply trying to maximize the value? Having specific financial goals will bring clarity.

What’s your role?

Are you looking to keep working once you begin the transition? If so, what do you want your role to be? How long do you want to be in that new role? Or, do you want to be totally out of the business? If so, get clear on the maximum support you’re willing to give the new owner.

Why are you selling?

It may seem like an obvious question, but the biggest reason transactions fail is the seller is not sure what he or she will be doing after the sale. The seller feels lost and thus sabotages the deal. Identify what your entrance plan will be for the next phase of your life.

Where to start?

Use my “3 Cs:”

• Clean numbers that are not burdened with excessive and confusing owner perks (assuming you’re getting ready to sell).
• Clear numbers, including up to five years of comparable numbers, so it’s easy to read the trends.
• Compelling numbers that show positive trends in growth: turning assets into sales, turning sales into profits and turning profits into cash.

Next, remove yourself from the equation. Set up your sales, operations and admin to operate without you in the day to day, even if you continue to support one of these areas.

Or, take it a step further like my client George Tucker, owner of Landesign in St. Louis. He brought in a CEO to run and aggressively grow his business, so he can enjoy his role of salesperson and owner.

Then, address the underlying risks. A company’s valuation is reduced based on the risks.

Address the internal risks, external risks, service-mix risks, client risks, the inherent risk of your business model and other risks that face your business.

Finally, get the right leadership team in place. Stabilize your core team and make sure they work with you through the succession, especially if you’re selling to someone else. There are ways to lock them in and ensure a smooth transition. If they are the ones buying the business, then, of course, this action goes to the top of the list.

Remember, selling your business is an existential challenge because it makes you face your life’s purpose and the needs of the next phase of your life.

What if someone came along today and gave you a crazy good offer to buy your business, but before buying, he or she performs due diligence and then reduces the offer based on all the risks and problems uncovered? Will you be ready?

As a first step, go through my questions and start a plan now. This will also help comfort your employees and your family if they have to deal with all this without you. Reach out and let me know how it goes!