Exit Planning Mistake No. 8: Not Having A Post-Transaction Plan

By Generational Equity

09/28/2016

Last week we posted an article on the importance of being a committed seller before you begin negotiating with buyers of your business. In that piece, we discussed the reality of how vital it is to be dedicated to the process since reneging on a deal can be far more costly than just the lost opportunity of closing a transaction. The potential ramifications from a confidentiality standpoint alone can be huge.

It is interesting to us that often one of the causal factors impacting a business owner’s dedication to selling can be impacted by our topic today: not having a post-exit plan.

Now this may sound fundamentally flawed thinking but you would be amazed at how many business owners we meet with at our exit planning seminars that are keen on exiting but have spent little (if any) time planning what their lives will look like post-sale.

They may have grand dreams such as “sailing around the world” or “retiring in Monte Carlo” or even “opening a dude ranch in Wyoming.” But majestic dreams with no real planning in place can fatally impact a business sale at the 11th hour when the entrepreneur turns to the spouse and asks, “So what the heck am I going to do once I sell the company?” If the answer is a blank look and a shrug of the shoulders, you may have second thoughts at that point about exiting. Again, reneging at the 11th hour while negotiating with a buyer can have serious consequences.

So that is why we spend time getting to know our clients as individuals. The more we can delve into their interests, hobbies, lifestyle, and pastimes, the better we can ensure that they have a real, serious idea of what they plan to do post-transaction. It is interesting to note that based on our research, most business owners have not only no documented exit plan, they also have not spent time actually investigating what they would like to do after selling their business.

For many of our younger clients, especially those that are interested in a partial sale and being retained long-term by the new owners (or for those who are not ready to retire and want to stay on after the sale), the idea of post-transaction life is simple and clear. However, for the rest, especially those that are in their traditional retirement years, devising a plan is very important.

What Do You Want To Do?

We recognize that many entrepreneurs have spent nearly every minute of the last 20-30 years focusing solely on building their business. There has been little time available for family and friends, let alone hobbies and related interests. However, it is clear that without a post-transaction plan, business owners often are faced with significant free time with nothing to fill it. Sometimes after a deal closes we hear from clients who in a few years tell us, “I need to buy a company from you guys because I am driving my spouse crazy hanging around the house now!”

This is not a scenario you want to fall into. That is why we counsel our clients to spend some time considering and brainstorming over what their lives will look like post-transaction. Not only is this vital from a personal enrichment standpoint, it will also help them determine what their financial needs may be in the ensuing years. This relatedly enables our dealmakers to craft transactions that meet our client’s desires, because for those needing to exit quickly and move on to stage two, some deal structures may not be as optimal. For example, if your goal is to retire as soon as possible and relocate thousands of miles away to be near your grandchildren, a five-year earn-out is most likely not a solid match.

These are issues you need to spend time examining with loved ones, friends, trusted advisors and most likely your wealth manager so that you can share your goals with your M&A advisor. If you are going to exit without M&A advice from a professional, be sure that you are clear with any buyer regarding your exit goals and timing (although be sure not to mention your expected business valuation expectations initially – let the buyer tell you what your company is worth).

You may find some of the plans that our clients have explored post-transaction helpful as you brainstorm regarding yours:

• Post Close – Find out what it feels like AFTER you sell your business.
• After the Close – What one owner plans to do post-close.
• I Knew It Was Time To Move On – The decision to sell and why.

Bottom line: No matter where you are on the spectrum of exits, whether it be a partial sale and ownership retention indefinitely or a quick exit within 1-2 years post-sale, it is important to realize what your post-closing goals are and conversely how much capital you will need to fund your lifestyle. For this reason, we advise our clients to not only heed our advice as M&A professionals but to also create an exit planning team that in addition to friends and family includes a trusted accountant, M&A attorney, and wealth manager. All are equally important to ensure that you are motivated to sell and are clear about why.

If you would like to learn more about exit planning and developing a future life for yourself and your family, I strongly encourage you to attend a Generational Equity exit planning seminar. We hold these specifically for business owners who are interested in beginning to develop their exit options; they are highly educational and are designed for the busy business owner. An investment of a few hours of your time will pay dividends later.

To learn more call us at 972-232-1121 or provide us with your contact information and we will be in touch.

And be sure to have a good idea of what your post transaction life will look like BEFORE you exit.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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