What Is the Best Exit Strategy For a Business?
March 1, 2022
After spending eleven months trying to find a buyer for my company, it became very clear to me that my business was not salable.
I received a number of offers, but none were nearly what I expected and hoped for. None were even enough to allow me to transition to something new after the sale.
In fact, if there was to be any transition, it was going to be for the buyer's benefit, not mine. All offers required me to stay on to maintain the business and transition out over time... essentially becoming an employee again and working for someone else.
Because the company relied too much on my reputation, knowledge, client relationships, and leadership.
I had not built a self-sustaining business with a strong group of leaders that could stand on their own without me, and for this reason, I was not truly free.
I wasn't free to exit on my terms and for a price I wanted and felt was reasonable.
Like many other business owners, I felt "stuck" in my business and wanted a way out or different way forward.
In the end, I chose to create a different way forward that ultimately provided me a way out.
Two Three Things Are Certain in Life
As the old saying goes, the only things certain in life are death and taxes. But there's a third certainty for business owners...
Exiting your business!
According to the United States Small Business Administration, between 800,000 and 900,000 businesses close their doors every year, or about 11% of all businesses.
Whether you close the doors and walk away, sell to someone, the business is taken from you legally, or you die, exiting your business is not an if, but a when!
True "freedom to exit" is when you do it on your own terms: when you choose, that provides you with maximum income, and you've maximized your freedom.
WHEN - When the time is right for you, you may choose to exit the business to pursue other interests or spend more time with family.
Alternatively, a buyer may approach you with an offer you can't refuse and make your decision to exit an easy one.
INCOME - Your income from the sale of a business is maximized when you receive maximum dollars upfront and minimum payouts over time.
Payouts often take the form of an "earnout", which is the situation when a seller "earns" their way out of the business. The added downside is, if the business doesn't perform at a certain level during the earnout period, the payments to the former owner are decreased.
FREEDOM - Your freedom is maximized when exiting your business if you're free to walk away at, or very soon after, the sale closes.
If you do stay on with the business, it's because you choose to stay for your own reasons, not reasons dictated by the buyer.
Earnouts often require the owner to stick around and help to ensure that the business maintains standards or hits certain growth goals, which is obviously the opposite of freedom.
How do you exit your business when you choose, with maximum income, and maximum freedom?
Freedom Focused Creates
Freedom to Exit
In the Fall of 2015, realizing that my business was not going to sell, I embarked on the third "rebuild" of D.R. Wastchak, LLC.
Most of what was needed to make the business much more efficient, reliable, and enjoyable to own and run was already known.
I had been studying for years, but never stopped and made time to focus ON my business so I could work less IN my business.
In my last article, I shared with everyone the Four Levels of Freedom model where small business owners operate their businesses.
D.R. Wastchak was not at the Struggle level, and although I had achieved the Experienced level of freedom once upon a time, we were at best operating at Competent prior to the start of the rebuild.
When rebuilding, it was essential that I be "Freedom Focused", because that was my ultimate goal... to create greater freedom for myself, less stress, less overwhelm, and greater happiness with the work we did each day, the quality of people on my team, and the clients we chose to work with.
We started by clarifying our core values and creating a crystal clear vision for where we were ultimately headed as an organization, so everyone knew how the work they did today, fit with the future we were working to collectively achieve tomorrow.
I worked incredibly hard to put processes in place that allowed me to build a "dream team" of employees, including the use of pre-employment information collected from job applicants to ensure each new person would be a great fit for the team.
We established a hiring process that allowed us to effectively and efficiently hone in on the best people for not only the position we were hiring for, but also who truly aligned with our company culture.
To greatly increase the engagement, buy-in and longevity of each member of our team, we conducted a simple but effective employee review process on an annual or semi-annual basis.
And much more!
It's no coincidence that many of the key steps we took to make D.R. Wastchak a Freedom Focused business, are very similar to the list of things that a business broker would ask any small business owner to do when preparing their business for sale.
So the business will sell for top dollar and the owner can exit on the most attractive terms possible.
Freedom to Exit
In my Four Levels of Freedom model, the pinnacle of freedom, at the very top of the pyramid, is Freedom to Exit.
Because D.R. Wastchak was operating as a Freedom Focused business, I was truly fortunate to ultimately achieve "Freedom to Exit", and sold the company to three of my employees, BUT... I didn't have to!
A business owner that works with a broker will take extra steps to improve operations prior to listing the business for sale.
Included in the improvement process is a concerted effort to make the business owner less of a key element of the operations so that the business is less reliant on their day to day involvement, thus allowing the owner to exit sooner and not be required to stay on long, if at all, after the sale.
With the company finally running better, perhaps better than it's ever run before, and now finally ready to sell, someone else, not the owner, will enjoy the benefits of the well oiled machine.
However, what if the owner just kept running the business, now in its much improved operating condition.... or let others keep running it while the owner focused on only those parts of the business that they loved doing most, all while maintaining ownership, and all the benefits of that ownership?
As long as the business remains in a condition that is ready to sell, the owner can theoretically sell it any time that they want to... perhaps when a buyer makes an offer they can't refuse. An offer that allows them to exit when they choose, with maximum income, and maximum freedom.
This is the best exit strategy for a business!
This is the "Freedom to Exit" level of freedom for a business and the business owner!
How long could your business survive without you?
This is a key question that I've asked many small business owners, and the answer speaks directly to how free the owner truly is.
Click here to take my short Business Survival Survey to share your answer. In return, I'll share with you what other small business owners have said about their own businesses.
The results might surprise you, or maybe not!
If you're interested in making your small business Freedom Focused, and ultimately achieving the "Freedom to Exit" level of freedom for you and your business, then click here to learn more about our Freedom Focused courses.
And, don't forget to stay...
Focused on your freedom!
Listen to the podcast episode: #019 What Is the Best Exit Strategy For A Business?