Okay, okay, it seems like everybody has used the “like a box of chocolates” metaphor at some point. But in honor of the 25th anniversary of the movie Forrest Gump (yes, it’s been 25 years!) we are taking our turn. As the full saying goes, “Life is like a box of chocolates. You never know what you’re gonna get.” Planning and preparing for exit is like a box of chocolates in that you too will not know “what you’re gonna get” until you lift that lid and take your first bites. Some of the flavors and textures will pleasantly surprise you, and some you will find distasteful to put it politely. As the owner and leader of a successful company, you probably don’t like a lot of surprises, especially ones that leave you wanting to spit.
Most business owners will only exit once, and therefore have only one shot at success. Because of this, it is imperative to minimize surprises in the process, because anything that catches you off guard can increase stress, raise costs, and undermine or even block your exit success. As a box of chocolates is full of surprises, so too will be your exit. Listed below are ten common exit surprises, followed by a free educational resource on how to avoid each.
Determining the value of a company is difficult and subjective in nearly all situations. Too often, what you think it is worth will be significantly different from what a potential buyer thinks. Many business owners are unfamiliar with some of the key factors that drive business value and get surprised by what’s important to buyers, and what’s not. Click here to start with our educational articles on what you really need to know about business valuation.
When exiting, it’s understandable to focus heavily on the total price your company may receive upon sale. However, you may get surprised to learn that terms will be just as important to you—and perhaps more important than price. Most commonly, how much cash is in the deal may matter and determine to whom you sell more than the total sale amount. Read here to understand why.
Many exiting owners are surprised to discover late in the exit process that their legacy aspirations are just as important to them as their financial goals. In some cases, legacy is so important it vetoes price—meaning you might end up picking the buyer who did not offer the highest price but instead offered a good price plus a strong fit with your values. Many if not most owners are not fully in touch with the legacy goals they want to achieve at exit—start here to begin exploring this critical topic.
Perhaps the biggest surprise for many owners occurs after you exit, and it happens at home. Exit often radically changes personal lives: family routines shift, social relationships develop, personal financial pictures are redrawn, and so on. Many owners and their spouses are caught off guard by these changes, which can be disorienting no matter how much you sold the company for. This free and previously recorded webinar helps prepare you for what to expect.
The number one goal for most owners at exit is to reach financial freedom—meaning working is a choice and not an economic necessity. Reaching financial freedom and staying financially free after exit is not easy, regardless of how large and valuable your company may be. First, you have to clear enough money at exit (after considerable costs and probably the largest tax bill you’ll ever pay), and second, you will have to manage and invest that money sufficiently well to replace all the income you enjoyed prior to exit. Many owners underestimate what is required here. To learn more, start with this helpful article.
This may be the most commonly encountered surprise on the list—preparing yourself, and your company for the future exit takes far longer than you expect. Typically, there are dozens of issues and projects (some large and some small) that need to be evaluated and addressed to prepare you and your organization for the actual exit event. With most of these issues and projects, you and your leadership team will have little to no experience because you’ve never exited before. All of this work must be done on top of running and growing your company—in essence, you will have two critically important jobs at the same time. To help, download this free ebook.
Our society preaches “going out on top.” Yet to many owner’s surprises, this does not often apply at exit. It may be advantageous not to exit on top, but rather before the company reaches its next performance peak. Buyers want a company that has not peaked, but instead still offers a credible, sustainable upward growth trajectory. It is difficult to time this properly, and even more challenging to exit from a company in the middle of a profitable, fun, and exciting growth period. To better understand why, read here.
If you have never sold a company before, you will encounter unfamiliar and sometimes unwelcome surprises at multiple points along the way. You cannot afford to be unprepared, especially when your buyer is more experienced and knows how to use its knowledge against you. This article will help you minimize the surprises and lead you into the process less blind.
One could argue that your EBITDA, once properly adjusted, is the second most important number you need to know to exit successfully. However, many owners get the nasty surprise of realizing (sometimes late in the process) that their EBITDA is misstated or adjusted incorrectly. This concise article explains why so that you are not caught off guard.
Often, when owners first start to think about exit, they immediately consider the financial aspects and opportunities. Then, frequently thoughts turn to key people and ideas for what one might do next in life. Those are just some of the issues and people exit impacts. In fact, your exit will affect or change nearly every aspect of your business and personal life. Start your exit planning here to avoid getting surprised by any overlooked item.
Exiting successfully is too important to leave things to chance, or to risk biting into some revolting coconut-boysenberry nougat chocolate morsel. Take the time to be prepared and work with advisors who have helped other owners exit successfully.