I was having a conversation with a business owner recently about his plans to exit the business.
He had a date in mind. About three and a half years from now.
That seemed reasonable enough, and he'd clearly been giving it some thought.
But as we started talking about what needed to happen between now and then, I realised we had quite a bit of work to do.
He knew when he wanted to leave.
What wasn't quite so clear was what the business would need to look like for that to happen.
And I think there's an important difference between those two things.
I meet quite a few business owners who have an exit date in mind. Sometimes it's linked to an age, sometimes a particular milestone, or perhaps they've simply decided that in three or five years they'd like to do something different.
There's nothing wrong with having a target date.
But a date on its own doesn't tell you what you need to do tomorrow.
So we started working backwards.
The first question wasn't actually about the business at all.
It was about the life he wanted to have afterwards.
What did he want to do with his time? What sort of lifestyle was he hoping to enjoy? And how much income would he need to support it?
Once you've got some idea of that, you can start thinking about the capital you'd need to generate that income, taking into account whatever other savings, investments or income sources you might have.
Then you can begin to ask what the business would need to be worth to provide the amount required.
Of course, the sale price isn't necessarily the amount you'll walk away with. There may be tax, transaction costs, outstanding debt or other factors to consider. That's where proper financial and tax advice becomes important.
But at least you now have something meaningful to work towards.
Because once you understand the valuation you're hoping to achieve, the conversation changes again.
What level of sustainable profit would make that valuation realistic?
What revenue would you need to generate that profit?
And what margins would you need to maintain?
Suddenly, something that started as a fairly distant ambition becomes a series of much more practical business questions.
Are we generating enough profit today?
What would need to change to improve it?
Do we have the right people and management structure?
How dependent is the business on the owner?
Would somebody actually want to buy it in its current form?
That last question is particularly important.
A business can be very profitable for its owner without necessarily being an attractive acquisition.
If most of the customer relationships, important decisions and operational knowledge sit with the founder, a buyer may be taking on rather more risk than they would like.
So building towards an exit often involves much of the same work we talk about when we're trying to get a business working without its owner.
Developing the management team. Strengthening systems and processes. Improving financial reporting. Making revenue more predictable. Reducing the dependence on any one person.
These are all things that can make the business better to run now, as well as potentially more attractive to a buyer later.
But there was another part of the conversation that I thought was worth exploring.
Three and a half years sounds like quite a long time.
Until you break it down.
It's only fourteen quarterly planning cycles.
Fourteen opportunities to sit down, review where you are, decide what needs to change and make some meaningful progress towards the outcome you want.
And that's assuming you've actually got the full three and a half years to prepare.
The process of selling a business can itself take nine to fifteen months, sometimes longer depending on the circumstances.
Finding the right buyer, negotiating terms, due diligence, legal work and getting the deal completed all take time.
So if the ambition is to have completed the sale in three and a half years, the business may need to be ready to go to market considerably sooner.
You might only have eight to eleven quarterly planning cycles to get it into the shape you want. When you look at it that way, the timetable feels rather different.
I find that useful because it encourages business owners to stop thinking about an exit as something they'll deal with nearer the time.
If you need a stronger management team, when are you going to start developing it?
If your margins need improving, what's the plan?
If too much of the business depends on you, how many quarters will it take to change that?
Some of these things simply can't be sorted out in the final few months before a sale.
And there's another advantage to doing the work early.
You might discover that you enjoy running the business much more once you've made those improvements.
You might decide to keep it a little longer, bring in somebody to run it, or explore other options.
Having a properly prepared business gives you more choices.
I don't think every owner needs to know exactly when they're going to sell.
But if you do have a date in mind, it's worth finding out whether the numbers and the business itself support it.
And if they don't, you've still got time to do something about it.
So if you're thinking about exiting in three, four or five years, perhaps the most useful question isn't simply when you want to leave.
It's what needs to be true about your business for you to be able to leave on your terms.
Then work backwards from there.
Because an exit date gives you something to aim for.
An exit plan gives you something to work on.
If you've got an exit date in mind but aren't entirely sure whether your business is on track to get you there, now is a good time to start working backwards.
The earlier you understand what needs to change, the more time you have to build a business that's valuable, attractive to a buyer and capable of operating without you.
Book a call with me and let's explore what needs to happen between now and your planned exit.
P.S: One of the biggest factors in building a business that can thrive without you is having the right people and leadership in place. How effective are you at bringing out the best in your team? Take my High Performance Leadership Scorecard to discover your leadership strengths and identify where you could become an even more effective leader.
