Aligning Exit and Life After The Business Goals with Business Growth Goals
Sarah thought she had a pretty good exit strategy in place—until it all began to fall apart at the deal table.
She was willing to stay with the business for a year or two after the sale and earn out a portion of the purchase price. But she wasn't willing to become the buyer's lender by financing a significant portion of the transaction. And she certainly expected to receive a higher price for the business she had spent years building.
The problem was that some of the decisions Sarah had made while building the business didn't align with the exit she eventually wanted.
Sarah understood the importance of delegating responsibilities to others, but she never really did it. She remained central to sales, customer relationships, and day-to-day operations. The business performed well—but much of that performance still depended on Sarah.
She had also spent years working with her advisors to minimize personal income taxes. That certainly had its benefits. But reducing taxable income often meant reporting lower earnings on the company's financial statements. Now that buyers were evaluating the business based in large part on its demonstrated financial performance, those earlier decisions were affecting both the value of the business and the offers she was receiving.
And then there was life after the business.
Sarah hadn't given that nearly as much thought. When she occasionally pictured her exit, she imagined selling the company, walking away fairly quickly, and enjoying umbrella drinks somewhere on a beach in the Caribbean.
There was nothing wrong with that vision. The problem was that the business she had built—and the way she had built it—wasn't positioned to produce the exit that would make that vision possible.
Sarah was learning an important lesson, unfortunately later than she would have liked:
Her goals for building the business had not been aligned with her goals for exiting the business or for the life she wanted afterward.
Three Sets of Goals—One Plan
Business owners tend to think about goals in separate categories. In reality, they are interconnected.
Life-after-the-business goals might include financial security, more time with family, travel, health and wellness, serving others, launching another enterprise, or simply having the freedom to decide what comes next.
Exit goals might include maximizing business value, minimizing taxes, rewarding employees, maintaining family harmony, transferring the business to children, protecting a legacy, or achieving a clean break from the company.
Business growth goals might include increasing revenue and profitability, generating higher income, maintaining control, building wealth and business value, creating greater freedom, expanding influence, or making a meaningful social impact.
There is nothing inherently wrong with any of these goals. The challenge is making sure they work together.
Consider Sarah.
If one of her exit goals was to maximize the value of the business, then building a company that remained heavily dependent upon her worked against that goal.
If she wanted buyers capable of paying more cash at closing and requiring less seller financing, then improving the quality, consistency, and credibility of the company's financial performance should have been an important business priority.
If she wanted to leave shortly after the transaction, then developing people, systems, processes, and leadership capable of operating the company without her should have begun years before the sale.
And if her financial security and desired lifestyle after the business required a certain amount of money from the transaction, she needed to know that long before sitting down at the deal table.
Each goal affects the others.
Start With the End in Mind—but Keep Reexamining the End
Most successful business owners are accustomed to establishing goals. They develop annual budgets, revenue targets, hiring plans, sales objectives, and strategic initiatives. They measure results and make adjustments along the way.
But many owners don't apply that same discipline to their eventual exit.
That's a mistake.
Your exit shouldn't be treated as an event disconnected from the years you spend building the business. The decisions you make today are creating—or limiting—the choices you'll have later.
That doesn't mean your goals won't change. They almost certainly will.
Your family circumstances may change. Your financial needs may change. Your health may change. The business may grow faster or slower than expected. Your children may become interested in the company—or decide they want nothing to do with it. You may discover that retirement isn't nearly as appealing as it sounded ten years earlier.
That's why alignment isn't a one-time planning exercise.
It requires continually examining three questions:
What am I trying to accomplish in the business?
What do I ultimately want from my exit?
What do I want my life to look like after the business?
Then ask the more important question:
Are the decisions I'm making in one area helping—or hindering—my ability to accomplish the goals I've established in the other two?
It's not unusual for an owner to be disciplined and systematic about setting and executing business goals, only to discover too late that those goals didn't produce the exit they were hoping for.
So, the next time you establish a new growth objective, make a significant investment, structure compensation, reduce taxes, hire—or decide not to hire—a key employee, take on debt, or choose to keep an important responsibility for yourself, ask:
How does this decision align with my goals for the business, my eventual exit, and the life I want after the business?
You don't have three separate plans.
You have one plan for your business, your exit, and what comes next.
The earlier those goals are aligned, the more choices you're likely to have when the time comes to leave—and the greater the likelihood that the business you've built will actually support the life you've been building toward. Contact us today for assistance in ExitReadiness®: email@ennislp.com | 301-859-0860.
