OPINION: Make sure you have an exit strategy from your business
JOHANNESBURG - Whether you’re running a successful business or you’re an aspiring entrepreneur, it’s essential to create a solid exit strategy early on.
This may sound pessimistic, but here’s the harsh reality: 70percent of all businesses crash and burn within 10 years. Therefore, selling the business before you collapse, or at least mapping out your next move, is a wise and safe plan of action.
A leader must know when it’s time to exit.
I was working in our family business for 20 years. My daughter, Amy, was slated to take over. However, to my surprise, Amy decided to become a teacher instead.
Yes, there are risks to generational succession: it only works 30percent of the time. Sixty percent of the wealth is lost in the next generation and passing the family’s most valuable asset to the next generation is a risky bet.
Suddenly, I needed a new plan for my future. I then established a talented board of directors made up of independent outsiders with objective views on the company’s prospects. My directors encouraged me to keep my business in a state of readiness to sell.
After my daughter opted out, I successfully sold the company. It was 10 times larger than it was when I became chief executive. The wealth generated from the sale has supported four generations of my family for nearly 25 years.
I’ve witnessed the vaporisation of wealth in businesses large and small far too often. It’s imperative that you’re constantly prepared to sell. Buyers follow a disciplined process when making acquisitions; a process that most sellers don’t understand.
Selling a company is an art, filled with nuances and subtleties. My four-stage process fits companies of all sizes for all business leaders. The financial reality is simple: companies that follow disciplined methods have a better chance to succeed. Those which don’t are less likely to have the best result.
- Exploration: Familiarise yourself with the process and prepare for the heavy lifting ahead.
- Decision-making: Weigh all the pros and cons of selling the business. The overarching consideration is how much cash you will receive for your company at closing.
- Execution: Once the sale is executed, the process must be carried out diligently to avoid costly mistakes.
It’s easier to lose a fortune than it is to make one. Sellers have spent their careers as operators, rather than as stewards of liquid financial assets. Be patient with your “new” liquidity. Before making any financial commitments, interview conservative wealth managers to learn about strategies for keeping up with inflation while preserving and protecting your assets.
Even if you feel irrelevant, don’t do anything for several months. Relax, take advantage of a life without pressure and schedules; it has been well earned. Then, begin thinking about the next chapter of your life. Too many people try to do too many things too quickly. Make considered decisions about how you want to spend your time and how to spend your money. You never want to run out of money either. This process will guide you through what is likely to be the biggest deal in your life.
Jonathan Pellegrin is the former chairperson and chief executive of Johnson Hill Press, and author of The Art of Selling the Family Business.
- PERSONAL FINANCE