By Arlin Sorensen, O and Founder of the Heartland Companies which includes HTG Peer Groups
In the first post of this series, I talked about the financial preparation required to maximize your outcome when you exit your business. Of course, that assumes you will sell or value the company at exit.
There are certainly scenarios where that may not be part of the exit at all. For example, if you are passing it on to kids or employees, the valuation may not really be a significant consideration. There are many different ways owners exit their businesses. My last post addressed one of those scenarios: preparing your company financially for sale.
But this next area of consideration will happen no matter what your exit strategy turns out to be. Whether selling or planning for the succession of your company to family or trusted employees, every owner will experience many emotions upon exit.
After all, you’ve poured your life and energy into the business for years if not decades. It’s like your baby, and you’ve probably spent more time with it than any children you may have been blessed with. So you have to prepare emotionally for the transition. If you don’t several issues could arise.
The first thing I suggest is to do all you can to take the emotion out of the process. This means thinking ahead and writing down some key guidelines. I call these the “non-negotiables” of the exit. What are the things that have to occur for you to be satisfied with an exit?
It may be a number of things, and I highly recommend you make a list. In my case, if an item on my list of non-negotiables was not met in an offer we were considering, we passed and moved on. This proved to be a lifeline for me and for my leadership team because it took a lot out of the emotion surrounding my exit away from the decision making process.
We let the requirements list drive the discussion and analysis. If emotion is part of every decision regarding your exit, you’ll be a stressed out, overwhelmed, and are likely to feel like an emotional wreck. This was one of the smartest things I did in my exit from my IT company a few years ago, and I commend the practice of sitting down to create an objective list of non-negotiables to you as well.
What does that look like practically? Write down a list of non-negotiables covering every aspect of a potential transaction. In my case, I identified a number of things that had to be part of the offer before I would consider that offer. These things also apply in planning the succession of a business.
The list of non-negotiables is about stepping back to consider your exit and what you hope the future of your company will be after you are gone and then taking steps to help prepare for that desired state. Everyone’s list of non-negotiables will be different because our companies, desires, and convictions are radically different.
Here are some questions you might want to consider when creating your list:
I suggest you create this list even if you aren’t considering any current exit. In fact, it may be easier to create the list now, long before exiting the company is a priority because you will be able to be more objective. Remember that this list isn’t written in stone. They are guidelines. You can come back to it and review it regularly. Your feelings and priorities may change. However, when you are prepared to begin the exit process, I encourage you to get the list in “final” form and then truly use it as a tool and filter to help guide your exit by keeping the main things front and center.
Unless you are an unusual business, you’re getting inquiries regularly about the willingness to sell. I used my non-negotiable list as a screening tool. When I got those calls, I asked if I could send over my list and if they were willing to comply and meet all those things, I told them I would be glad to have further discussion.
In my case, there were some limiting factors that required the purchaser to be committed to rural America and the markets and clients we served. Until the eventual buyer surfaced, those items on the list had been a show stopper for all other inquiries. No one was willing to commit to the small towns and rural client base we built our business upon. They wanted to cherry pick some clients, employees and markets but not commit to the mission we were most passionate about: delivering great IT services in rural areas and small towns across the Midwest.
Once you go through the exercise of determining your list of non-negotiables and define those things that are the fences to any potential exit, it can be much less stressful and helps take the emotion out of the exit decision. There will still be a lot of emotion in various aspects of your exit; that is inevitable.
As entrepreneurial owners, any type of exit no matter how successful will be emotional in some way as we let go of something we built and loved for a period of time. However, hopefully creating a list and using it as a tool to filter possible deals or succession plans like I recommend will help you to be clear-minding as you make decisions throughout the exit process.
Many bad exits happen because people act out of emotion, not logic and fact. The more you do to prepare and make sure you don’t get into a situation where you are making a decision without guidelines and fences in place, the more likely you are to get the outcome you truly desire.
Planning goes a long way to help set you up to make a successful exit. Take the time to create your list even if you aren’t seriously thinking about it today. That day will come. You can always adjust and modify the list later, but start today and begin to identify what has to occur for you to exit.
Looking back on my exit now, I am so glad I took the time to create and use my list.
Arlin Sorensen serves as the CEO and Founder of the Heartland Companies which includes HTG Peer Groups. When he is not traveling to speak and consult, he is home on his farm in Iowa with his wife Nancy. He is a proud “Pop” to four precocious grandchildren who serve as daily reminders of why he is intentionally living to leave a strong legacy of faith and integrity. He loves making a difference in the lives and businesses of small business owners. You can reach him at firstname.lastname@example.org or on Twitter @asorensen.