The process of an owner leading their organization to the profitable point where the operations and equity can successfully transition to another owner is, first and foremost, a personal process. While so many business decisions need to be made to have a company run without the owner, the reality is that owners will not exit until they are truly ready to do so. Therefore, the question that this newsletter is designed to help owners answer is how they can score their readiness for a business exit.
Exit Planning is a Personal Process
In a privately-held business where an owner is an active participant in the company, it is almost always the case that nothing material happens with the business until the owner decides that it is going to happen. Owners have the ultimate veto power and, at a personal level, owners make decisions that are aligned with what they are trying to achieve.
Gaining Clarity Can be a Challenge
One of the most difficult aspects of making the ‘right’ decision for your business exit is knowing how ready you really are for a transition of the business to someone else as well as your transition out of the company. Gaining clarity on the ‘right’ decision for your exit is aided by following a process, and the first step in this process is determining what drives you in the business as well as detailing your longer-term goals. Not being able to accurately detail your goals is a normal reaction. So, while you’re determining what you most want to achieve, it is helpful to understand both your ability to afford what you want as well as how much longer you want to keep working in your business. We refer to this as ‘financial’ and ‘mental’ readiness.
Financial Readiness
Given that exit planning is a personal process, one of the best places to start this process is understanding how financially dependent you are on the income and profitability of your business. For most privately-held business owners, their business represents their largest asset and their primary source of income. However, some owners have significant stock and bond holdings, real estate, and other income-producing assets which can provide them with the income that they need to continue their lifestyle independent of the income from their business. Knowing where you stand in this spectrum is a good first step in understanding your readiness for an exit – in this case, we call this ‘financial readiness’ and there is a process whereby you can actually score your financial readiness to gain a better understanding of how dependent you are upon the business for your livelihood – see more below.
Mental Readiness
After ‘financial readiness’ it is also very helpful to know how much longer you want to continue working in the business – we call this ‘mental readiness’. Some owners continue to possess the passion that they had when they started the business. However, some owners are feeling tired after all of their years of effort and would like to move on to their next project, business, or next stage of life. Also, some owners simply just want to work fewer hours and pass on the day-to-day responsibilities of running the business to others. Once again, there is a simple process whereby you can score your current ‘mental readiness’ for an exit by taking a few minutes and using an online assessment tool to answer some simple questions on this topic.
Clarity Achieved from Understanding Your Financial and Mental Readiness
If you as an owner can understand how financially dependent you are on your business as well as how much longer you want to work, you can use those inputs to further determine how close you are to reaching your goals. Using financial and mental readiness as starting points in the process, you can start to gain clarity around what is possible for your exit. And, once you have applied enough critical thinking to these issues, you should begin to get more and more clear on not only when you are ready to exit, but you’ll also be ready for the critical next step of understanding ‘how’ you want to exit your business, the topic of a future newsletter.
Concluding Thoughts
Below is a link to a 10-minute, 20-question online assessment that can assist you in determining your financial and mental readiness for your exit. There is no fee to take the assessment, and your answers are sent immediately to your e-mail and kept completely confidential.
Start Your BERI Assessment!As a business owner who may be thinking through the eventual exit from their business, this complimentary online assessment may be the ideal starting point. And, after receiving your Business Exit Readiness Index™ Owner’s report, you may want to take a follow-up meeting to discuss your answers to the questions to gain further clarity on how you may have a successful exit in the future.