Your Business Exit: Monetizing Your Life’s Work
“It’s Not All About the Money”—How to Manage the Financials and the Emotions So You Can Leave on Your Terms
You know it’s time, or getting there. You built a successful enterprise, waking up every day determined to make your company better than the day before. Determined to make yourself a better leader than the day before. The struggle, the competition, the ability to prove yourself—you relished it.
But now something else is arising. You’re thinking of retirement or perhaps a new passion project, an encore career, the life of an expat—and ever so slightly, day by day, the call is growing. You know you can’t ignore it much longer, even if you’re tempted to.
And you are tempted to ignore it because what does a life transition like this mean? It means big change. It means something new you haven’t defined yet—and the letting go of the company you built with your hands.
That’s why Your Business Exit: Monetizing Your Life’s Work doesn’t cover the usual topics you’ll find in an article about business transitions. Instead, you’ll find information on:
In this article, you will get the nitty-gritty detail part of valuations and business sales, but you’ll also find tips for traversing the psychological journey. If this seems rather touchy-feely for a financial advisory firm like ours—well, we have seen too many cases of people ignoring the emotional component to their detriment. If you want to leave the business on your terms, you’ll want to address the entire exit picture.
Here, we’ll explore how everything can come together—the dollars and the cents, as well as the behavioral—so that you can create a successful business exit. You’ll learn the factors that can help you monetize what you have poured your heart and soul into. We’ll help you determine the team you need by your side, and we’ll share how to start looking forward to the next stage of your life.
We begin with the “how” of your exit in the next section.
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Start with How You Want to Exit
So you have decided to move forward with transitioning out of your company. First: Congratulations! Putting together a business succession plan places you ahead of the pack. A 2017 survey found that most business owners lack a plan.¹ We think that making an exit without a strategy in place is a mistake.
Assess Your Options
The first step is deciding how you want to exit. How do you want to pass on your company? Your decision will help shape the course of your plan.
You can:
Transfer it to family members
Design an internal sale to an employee or employees
Sell it to a third party
Weigh the Pros and Cons
Each decision has its pros and cons that you’ll need to consider. For example, if you’d like to sell the company to family members, first make sure you have a family member who wants to take the reins and has the competence to do so (you’d be surprised that many potential heirs apparently don’t). The family member may also lack the ability to finance the price you need, calling for creative solutions if you are set on this path.
But passing a business within a family—and to some extent, to employees—can mean that the values you founded your company on will be honored and live on after. Your company’s community service, its local focus, its commitment to customers—you have less control of the legacy once the company is in the hands of a third party.
This is the time to do some soul searching. How do you envision the company being passed on? What factors are you flexible on? What is non-negotiable for you? Will it still be non-negotiable if it means you receive less money?
Get a Financial Advisor’s Expertise
Consider fleshing out this question of “How will I exit?” with an experienced financial advisor (see “The Dream Team” for more on financial advisors). Your advisor can help you understand the financial impacts so you can decide on the exit that leaves you feeling good about your company’s new owners and the financial future for you and your family.
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Let’s discuss how our “Leave on Your Terms” business succession process can help you. Schedule your complimentary discovery meeting today.
Managing Family Dynamics
In the next section, we will get into the financial fundamentals of your business succession plan. But if you plan to keep the company in the family, this section is for you. It’s short but important.
Communication: The Essential Element
The success of your business transition can rise or fall on family dynamics. It is important to communicate early and often with your immediate family, as well as any extended family members and other stakeholders who have an interest in this transfer.
As a successful entrepreneur, you may be unaccustomed to this level of communication. You may find this uncomfortable. You may find yourself resisting this new depth of communication, but discussion is essential. Disgruntled family members can sink your legacy through in-fighting and via the court system.
Bring in Professionals
If you selected one child to take over the family company, consider how you can make the decision equitable for your other kids. Get your estate planning attorney and financial advisor in the conversation. Not only will they provide the objective perspective of a third party, but their presence in the room can help mitigate tempers and keep the conversation focused on the objectives.
Let Everyone Have a Say
Make sure this ongoing discussion gives everyone a chance to be heard. By facilitating open conversation, you will help create a more seamless transition and harmonious family life. You won’t have to enter your new life chapter weighed down by your family’s fighting. Instead, you’ll be able to look forward to all the great adventures you have planned (more on that later).
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Your Business Exit: Monetizing Your Life’s Work
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The Financial Nitty-Gritty
Your business succession plan has two purposes: to pass on your company and to ensure you have enough money to retire. This makes planning as early as possible—at least five years from the date you want to transition— important. You have a lot of moving parts that need to come together, and it takes time to do this.
The Shape of Your Exit
The tool we would use to shape your exit is a financial simulator. We input your current financial information and make assumptions about when you want to retire, the lifestyle (expressed in today’s dollars) you desire monthly or annually, and what is likely to occur between now and your planned retirement from your business.
This exercise can help you understand the chances of achieving the vision that’s in your head or if you suffer from “magical thinking.” It also informs the investment strategy that may help to accomplish your vision, and helps identify ways to diversify or preserve and protect your wealth when you monetize your life’s work.*
We advise many clients to take less risk than they have currently because the expected rate of return required to make their plan work is often lower than they think. We often ask the question, “Do you want to assume more risk than you have to?”
* There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Steps to Exit
Your exit process will likely include the following steps:
Determine the age at which you want to leave the company. This will help set the framework for your plan.
Assess your financial situation and your desired retirement lifestyle. This step will help you determine the cash flow you need for retirement.
Determine the gap between your savings and your desired lifestyle. Ideally, the sale of your company will cover that gap. You’ll need to problem-solve if it won’t.
Decide how you want to transfer the company. Knowing the “how” (see “Start with How You Want to Exit” ) will help you understand the appropriate steps forward.
Get a valuation of your company. Many people think they can ignore a valuation since the sale is years down the road. However, a valuation is essential. By understanding your present value, you can act to increase the value and get the sale price you need to retire.
Assess and implement the steps you need to increase value. You want to look at factors such as your customer base, systems and processes, and cash flow. We would argue, however, that the most important factor is you—or better yet, the lack of you. Your buyer will want to know that the company can function without you. Start stepping back from the day-to-day running of your company and give your management team the opportunity to hone their skills. Giving up control may challenge you, but it is essential for maximizing your company’s value.
Review your financial picture. If you have always kept your cash in the business, now is the time to diversify your wealth. Factors outside of your control such as a recession can hurt your company’s bottom line. Diversifying your wealth can help see you through rough times and allow you to adjust your plans from a place of strength rather than weakness. Review your professional and personal financial picture, including retirement accounts and other investments, insurance, and estate plans. This step may be difficult as many business owners feel in control of their company’s destiny but not in control of an investment portfolio.
Understand the tax impact. Your tax picture will depend on your company’s structure and the type of sale. You want to understand this picture and implement strategies across all areas of your wealth to reduce the tax impact. The fewer taxes you pay, the more you will have for retirement.*
Find a buyer and agree on financing terms. Most agreements allow the seller to purchase the business over time. This can be ideal for both of you, as it will allow for a slower transition out of the company, increase your team’s strength in running the firm, and allow the buyer to avoid an upfront investment they cannot afford. But you may have different plans, and by this point in your journey, you should understand those plans and seek a purchaser who will meet as many of those terms as possible.
Implement the sale. Make sure to communicate with your employees and customers. Provide the pertinent details, and if it’s feasible, make in-person introductions. Both your clients and staff will have questions; be prepared and be transparent. It’s in your best interest that everyone affected by the transition of leadership is prepared.
Retire. Congratulations! If you’re wondering what comes next, see “What Comes After? The Second Mountain.”
*SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
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The Dream Team
The most important nonfamily team you will ever assemble in your life is the dream team or your personal board of advisors/directors—an experienced financial advisor, attorney, and tax expert who work well together, park their egos at the door, and work on your best interest in the process. The earlier your professional team is assembled, the better.
This can be a sensitive topic, as many CPAs or corporate attorneys will tell you they can handle the transaction. But you will be best served by a team whose members have a deep understanding of the process and the experience needed to avoid pitfalls and maximize your after-tax proceeds.
So many questions need to be considered: Stock or asset sale? How quickly do you want to shift your risk? What assurances to the buyer are you prepared to represent in writing, and what assurances are you not prepared to represent?
And the list goes on.
Your team, particularly your financial advisor, can refer you to additional professionals as needed, such as a business broker and insurance professional.
Ideally, your financial advisor will serve as the operational hub. They can collaborate with your attorney and tax professional, provide updated financials, and help ensure that details don’t slip through the cracks. They bring both the big picture and oversight to your business succession plan.
They can help you grasp your options, build out a detailed financial plan, and keep you on track. They also can serve as your coach through what is going to be an emotional time, and they can help you plan for what comes after the sale.
We recommend that you work with a financial advisor who puts your best interest first. That means an advisor who has a fiduciary obligation to you and gets paid by only you, such as a registered investment advisory (RIA) firm. Your advisor should also have expertise in business succession planning.
This stage of life can leave you feeling uncertain. Experienced professionals who have your back can help reduce the uncertainty and boost your confidence that you are going to be OK.
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Read our ebook Your Business Exit: Monetizing Your Life’s Work, and get started with your transition plan. Download a complimentary copy today.
Your Emotions Will Have an Impact
Monetizing your life’s work means preparing for the psychological impact. Will this impact be included in your company’s valuation? No, it won’t, but it is still essential to your business transition and the life that comes after. If you fail to take in the psychological effects of leaving your company, you can end up sabotaging the transition and imperiling your retirement.
Your company is your life’s work, and now you are preparing to let that life’s work go. It is natural to feel a number of emotions. Grief. Confusion. Dread. Exhaustion. Panic. Excitement. (It’s not all negative!)
You are used to being in control of your company. All decisions came through you; the success is due to your hard efforts. Now, you need to let go of that control bit by bit so that your company is primed for the transition. We have seen many business owners stall at this point. They worry that the employee, the family member, or the buyer won’t be able to make the right decisions. And their instinct is to step in.
Resist the urge. Instead, follow the plan that you have established. If things do indeed start to drift, then course-correct. Your company’s sale and your retirement depend on having competent people in place to make the decisions you are used to making.
Don’t Repress—Process
Now is the time to serve as a mentor so that your successors know how to succeed. And it is also the time to fill the void left by handing over the reins. It’s time to create a new vision for your life, which we will cover more in the next chapter. In the meantime, you will find it helpful to stay emotionally balanced.
You may need to find a healthy outlet for your feelings through activities such as exercise. Journaling can be helpful, and so can the help of a support group, counselor, spouse, or other business owners. If you are struggling, that’s perfectly natural. A counselor can help you process the psychological impact. Don’t be afraid to lean on them. And don’t be afraid to lean on the other professionals in your transition team. They’ve probably seen it all, and they can help you stay the course.
By dealing with the emotional impact, you’ll avoid sabotaging your sale and even start looking forward to the day you hand over the keys forever.
If that thought fills you with dread, it’s time to begin visioning your new life. We’ll cover that in the next section.
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What Comes After? The Second Mountain
In our work with business owners, we ask them, “What does your life look like after you sell your business?” Many times, we get a blank look.
That blank look is understandable. These very busy business owners have their focus in the here and now—on the needs of their family, employees, and customers. They have little time left over to think about tomorrow, and they may even be avoiding it. Change is unnerving, the future is unknown, and it’s more comforting to focus on what seems certain and controllable.
But that future will come, planned or not, and you can help yourself with the change by making envisioning your future part of your business succession process. By spelling out what you want your future to look like, you will help counter the loss of identity you might feel when you wake up one morning and realize you don’t have a company to wake up for.
We urge anyone who is planning their businesses exit, or who has already exited, to read The Second Mountain by New York Times best-selling author David Brooks. He writes of two metaphorical mountains. The first encompasses what many business owners have pursued as the goals our culture tells us we should focus on—social status, happiness, a nice home, a loving family, great vacations, good food, wonderful friends, and on and on.
But some people get to the top, sell their business, and find it unsatisfying. “Is this it?” they ask themselves. They sense that there must be a more meaningful journey they can take.
The second mountain is where people realize their ego can never be satisfied. They find out they don’t want to be a full-time consumer—they want to be consumed by a moral cause. They realize independence is lonely, and they long for connection, relationships, intimacy, responsibility, and commitment. They seek long-lasting joy rather than temporary happiness.
In our experience, the second-mountain perspective is a helpful way to think about your life when you are still on top of the first mountain!
What Will Your Life Look Like?
Start by picturing what your day-to-day life will look like. You are suddenly going to have a lot of time—how can you make it meaningful? What will get you excited to wake up every day? Write down your ideas.
It can be helpful to look at the things you said you wanted to do over the years but never had the time for. Perhaps you wanted to volunteer for a local nonprofit or serve on a board of directors. Maybe you want to get more involved in a professional service organization like Rotary Club. Perhaps you really want to dig into that heirloom garden you always dreamed of. Start up a new business. Travel. The options are endless.
Who are your family members, friends, and colleagues that you want to spend more time with? What shared interests do you have? It’s a good time to start thinking about the activities you’ll want to pencil into your planner once retirement arrives.
Finally, what are the big dreams—the bucket list experiences—that you have always put off?
For many, retirement is a time to focus on purpose. As you review your envisioning list, certain themes such as mentoring youth might stand out to you. Take notice of these themes. They can help add meaning and fulfillment to your new life chapter.
Feel the Excitement
The point of this exercise is excitement. We want you to get excited about your next life stage because you have dreams and goals that you will now have the time to fulfill.
Don’t stop at just sketching or drawing the picture of your retirement. Start coloring in the details by making plans now. Take educational courses, talk to your local nonprofit about their volunteer needs, and work with your financial advisor to budget for your big-ticket dreams.
By laying the groundwork now, you can help yourself step from one life chapter into the next with confidence and purpose.
Conclusion: Monetizing Your Life’s Work
As we conclude this article, we do so knowing that your journey has just begun. We hope this guide has answered your initial questions, provided clarity, and boosted your confidence.
Your Business Exit: Monetizing Your Life’s Work provided a framework to get your business succession plan started. We want to reiterate that the sooner you begin, the better. If you start at least five years out from your retirement date, you are giving yourself the time you need to manage a business exit and create a retirement plan on your terms.
We emphasize the emotional aspect of business succession. Our firm, SJS Investment Services, has seen over and over again the importance of the psychological realm. It can make or break your business transition experience, and that’s why it’s an essential component to monetizing your life’s work.
Plan for your business succession; plan for what comes after. Get into the financial details. Work with an experienced team that will be your trusted partner. Accept all the emotions as the necessary guests that they are. And dream big for the life that comes after business ownership.
Leave on Your Terms—Work with Our Team
Our “Leave on Your Terms” business succession process provides comprehensive financial planning by experienced, empathetic advisors intent on helping you succeed in your business exit and retirement. As a registered investment advisor (RIA) and fiduciary, we put your interests first.