Exiting Your Business in Tough Financial Times – an Interview with John Leonetti
If tough financial times have made you sick and tired of the grind of having your own business, maybe you’re ready to sell. But selling may not be the best option; you should consider the whole picture.
I recently read a book titled Exiting Your Business Protecting Your Wealth by John Leonetti and I talked with Mr. Leonetti about how Baby Boomer business owners can exit their businesses gracefully while getting the maximum value for all their hard work. I’ll be sharing some of his thoughts today and tomorrow.
How do Baby Boomer business owners assure that they get the highest value out of their business if they sell?
The decision to sell for the highest price generally requires a demonstration of the highest sustainable profitability that the owner’s company can generate for a future buyer. Profitability, therefore, should be illustrated in a manner that convinces a buyer of the ‘true’ net profits of the business. The owner should also be able to explain, in detail, the future prospects of the business as well as how the buyer can continue to achieve success – with or without the owner continuing to work. An owner should be able to identify the personal expenses from the business in order to emphasize the ‘true’ profits of the business, i.e. the business should be as ‘clean’ as possible to show the buyer what it will truly like and how the business will run once that owner is gone.
How do you decide how long to stick around? It seems many Baby Boomers want to keep a “finger in the pie” in the business, but does this generally work?
Every business owner will need to make their own personal assessment of their ‘mental readiness’ (EYB, chapter 3) to stop working. However, the process of keeping an owner on board for a ‘neat and orderly transition’ is a part of the selling negotiations and is generally controlled by the buyer.
In general, business owners do not make good employees. Therefore, once the business has been sold, that owner needs to be prepared for the fact that the new buyer has [likely] purchased control of both the finances and strategic decision making within the business. Consequently, the new owner will likely want to implement changes. This can be difficult for an exiting owner to adjust to. Owners need to spend time thinking about what they will be doing after the business exit so that they can find productive and meaningful uses of their time. This makes the transition much smoother, but is easier said than done for an owner who was driven by business success.
Four Types of Boomer Business Owners
Mr. Leonetti describes four types of business owners, according to their mental and financial readiness, and he takes readers through a series of questions to determine where they fall on the spectrum. This is a valuable exercise that anyone who is interested in getting out of a business should undertake before jumping into the process.
Tomorrow, I’ll give you Mr. Leonetti’s response to my question about how the current market situation affects your business exit plans.
* * * * * * * * * * * * * * * * *
John M. Leonetti, CFP, CM&AA, knows about businesses and exiting businesses. He successfully exited a previous business and is currently the owner of Pinnacle Equity Solutons, an exit strategies firm specializing in exit strategy design and execusion services to advisors and privately held business owners. He also teaches private finance to MBA students as an adjunct profesor at Suffolk University; has been a financial consultant with Smith Barney; a financial advisor with Merrill Lynch, Pierce, Fenner & Smith; a mergers and acquisitions associate; and a manager in his family business.
Image source: Sxc.hu