Stop Putting Off Change. Embrace It and Make It.
If you are trying to make a change, why aren't you actually making the change?
Over the years, I have both observed and been involved in many deals that really left me scratching my head. In these situations, I end up asking myself...
"If you are trying to make a change, why aren't you actually making the change?"
An owner-manager might come to me and tell me that they have had enough of their business and they want to move on to the next phase of their lives and retire. However, what often happens is they end up in a deal that is complex and ties them in for a period of time. This often results in them continuing to be “in” the business for years with similar stresses and pressures and that retirement doesn’t really materialise.
The issue is this, most sellers of businesses want two things out of deals. Firstly, they want FREEDOM - they want to move on with their lives. Secondly, they want CASH.
Now, there is an inevitable trade-off between these. No one really sells their business and gets an amount of money that is more than they would have had if they had kept it forever.
So, there is a certain trade-off between cash and freedom.
For a very attractive business, the trade-off is small. Offers fly in at very high multiples & restrictions, and the role of the owner going forwards is minimal. In that situation, both goals can be met. However...
- What if the business doesn’t have a strong management team?
- What if the trade is somewhat reliant on the owner?
- What if there are issues that need someone to stay around to solve?
In this case, what typically happens is that the deal structure becomes more complicated. An “earn out” gets added, meaning the seller has to stay around for a number of years to get all of the value. The owner is tied into performance or the relationship with the main client.
These are the difficult situations that mean full retirement has to be postponed, but these are not the situations that leave me scratching my head. This is the real question:
"Do you need the money from the deal to retire?"
No one really asks these questions. Deal momentum is a real phenomenon, often driven by advisors who are paid a percentage of the price achieved. That said, someone should still be asking that question because the answer is really important.
If the answer is "yes, you do need the money to retire", then it's probable you will have to stay and do what needs to be done.
On the other hand, if the answer is "no" and, like so many owner-managers, 30 years of owning the business means that the business (whilst valuable) is a minority of your assets (if you are honest with yourself), then why are you risking your retirement for money that you don’t need?
This is a sensible question that seems counterintuitive until you ask it and really think about it. If you are of retirement age, you have passed into the phase of your life where time is your most scarce and valuable commodity.
Why risk years of it for a 5, 10, or even 20 to 25% increase in your wealth? It really makes very little sense but is in your blind spot until you ask this question. So…going back to where we started:
If you are trying to make a change, why aren't you actually making the change?
If you have any further questions about making the change from owner to retiree then don't hesitate to click here to get in touch.