Ray Titus is CEO of United Franchise Group (UFG), a global leader for entrepreneurs with brands in over 1,800 locations in 80 countries.
You’ve spent decades building your business, celebrating its successes, steering it through rocky financial times and overcoming challenges from the competition, the market and sometimes even your customers. But you may be headed for the toughest part yet: letting go and stepping down.
No immediate plans to sell the company or pass it on to successors? It’s even more crucial for you to start planning now. It can take years to get a business in proper shape so you can extract maximum value to fund your next move and leave a true legacy for future generations.
It’s not easy to let go, even if you haven’t built your entire identity around your company. I always say I’m not married to my business; I’m married to Andrea, my wife of 35 years. But when I do leave my office for the last time and hand the keys to one of my sons, I know I’ll walk away a little more slowly than at the end of any other work week from over the past four decades.
I haven’t stepped down yet from my company—that’s several years away—but we are involved with business exits every month with our franchisees and every year with brands we own. I’ve found that successful exits are always well planned and organized and are given time to be done right. It’s all in planning ahead and then executing to make it happen.
Do’s And Don’ts
Once you’ve decided to exit:
Don’t tell the world.
Many owners make the mistake of telling everyone, including employees and customers, that they are selling. Maybe they think spreading the word will attract buyers, or they don’t like to keep secrets from stakeholders. But this can backfire.
Until you have a serious sale prospect, you have uncertainty, which can depress employee morale and scare off potential buyers—even customers. Keep your cards close to the vest, and don’t show them to anyone but your strategists.
Do provide accurate information.
Go through your books and records for several years (five to 10, ideally), so your team can put together the most accurate financial picture. The more and better the data, the better your potential sale price.
Do lean on professionals.
It’s a good idea to hire two very different people if you’re selling: an exit strategist to improve the business’ organization and profitability, and then a business broker to find the right buyer. (Disclosure: My company helps with this, as do others.) The expertise and objectivity they bring as outsiders is very valuable. I’ve found sellers often think their business is worth more than it is, and we don’t always know as much as we think we do about the market and who makes a great buyer.
You’re putting the future of your business in someone else’s hands, so choose your consultant wisely:
1. Look for industry experience: Choose someone who has successfully prepared and sold businesses in your specific industry, and ask for case studies or references from past clients. Ideally, they’ll have M&A experience, financial acumen and strong project management skills. Certifications such as Certified Business Intermediary or experience with due diligence and valuation are also valuable.
2. Make sure they fit: You’ll be working together closely for an extended time, so you’ll need someone who communicates clearly, listens well and can collaborate with your accountant, attorney, internal team and especially you. Basically, can you work with this person?
3. Beware of false promises: Avoid anyone who promises quick sales or wants to inflate your valuation without data to back it up. A good advisor will give honest assessments, highlight risks and work methodically to enhance your company’s appeal to buyers. Look for transparency, not just enthusiasm.
Do trust the process.
Exit strategists will typically work for six months to two years organizing the company’s books and records to present an attractive profit and loss (P&L) statement to potential buyers. A business broker will then take those improved P&Ls and help sell the business within six to 12 months.
This may seem like a long time, but it’s in your best interest. What’s another two or three years to make 35 years of work matter? My advice is to let the professionals do their jobs, listen to what they tell you and make the adjustments to your business.
Letting Go Starts Now
While valuation is being conducted, look at your organizational structure. If you’re still running the whole show and making all the major decisions, it’s time to bring others into management and start delegating key responsibilities to them. No buyer wants a company whose only leader is gone. If you are still very active in your business and typically the most important person there, why would you think the company will be worth a lot without you?
Depending on how much control you’ve been used to exerting, it could take longer than you planned to relinquish it. You may need to contract with the buyer and stay for one to two years to manage the transition and get the money you want from the sale. Remember, there is a reason you don’t work for someone else now. This is tough for many people; the skills and traits that helped you make your business highly profitable can’t just be turned off when you sign your name on the closing papers.
If you decide you want your children to succeed you, as I have, I suggest to bring them in early so they can learn how the business runs. But make sure they want to take over and that you’ll accept the answer if it’s “no.”
The key to successfully bringing family into the C-suite is devoting time and training them and moving each of them up over time. Promotion to the top must be earned, and the successors should be given opportunities to prove themselves. They’ll thank you when they’re known as something besides “the boss’ kid.”
As for me, my exit will be something I’ve worked on for 25 years. Assuming my health stays good (I’m only 62), I’ll manage myself out of my company’s leadership over 10 to 15 years, moving from CEO to chairman of the board, to board member and finally to full-time grandpa.
I think that’s the way to exit a business in a perfect world. Let go over time, a few pieces at a time, not all at once in a sink-or-swim approach.
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