In the world of business, the decision to exit is a pivotal moment that can either be a triumph or a tumultuous experience. Recently, I had a conversation with a business owner that sparked a crucial question: “If someone makes an offer on my business and I accept it, is that leaving on my terms?” The answer, as I explained, is a bit more nuanced than a simple acceptance of an offer. Leaving on your terms involves meticulous planning, strategic readiness, and maintaining control throughout the entire process.
The Pitfalls of Reactive Decision-Making
When an unexpected offer comes knocking, it often carries assumptions and conditions that may not align with the true state of your business. Reactive decision-making in such situations can lead to a lack of competitive tension among potential buyers, leaving you vulnerable to unfavorable terms. The due diligence process becomes a distraction, diverting your attention from driving the business forward and potentially resulting in a reduced offer. This unfortunate scenario can leave business owners feeling disgruntled and bitter.
The Importance of Proactive Planning
To truly leave on your terms, a proactive approach is key. This involves making your business “exitable” – a term I’ve coined to signify being prepared and ready for the exit process. Essential elements include shareholder agreements, well-structured corporate governance, clean financial records, and efficient systems. Viewing your business through an investor lens helps identify potential risks and highlights areas for improvement.
Leaving on Your Terms
A successful exit is one where the buyer finds the business to be as presented, with minimal reliance on the owners for day-to-day operations. This ensures that the final price closely aligns with the original offer, creating a sense of fairness and satisfaction on both sides. Swift and smooth transactions occur when everything is in place as expected.
The Risk of an Earn-Out Period
In contrast, when the business doesn’t meet the buyer’s expectations, owners may find themselves obligated to stay on as employees during an ‘earn-out’ period. The success of this period is tied to the achievement of revenue targets, and leaving prematurely can result in financial loss. Many individuals find it challenging to adapt to new ownership arrangements, leaving them dissatisfied.
Strategic Planning for a Smooth Exit
To guarantee a smooth exit, strategic planning should commence at least three years in advance. Succession readiness ensures that your business is well-prepared, reducing the likelihood of unpleasant surprises during the exit process. As part of this preparation, understanding your business’s value through a reliable valuation tool can provide a realistic starting point for negotiations.
Leaving your business on your terms is not just about accepting an offer but about being in control throughout the entire process. A well-prepared, exitable business minimises risks, facilitates fair deals, and allows for a smooth transition. Don’t wait for an offer to dictate your business’s fate – take charge, plan ahead, and ensure that your exit is on YOUR terms.
