How Business Owners And C-Level Executives Cash-Out, Grow and Secure Their Wealth
While it is important to work for your business and to build it up, you also need to know when the time to let it go is. In the pursuit of your financial success, you must realize that your investments are simply the stepping stones towards accumulating enough wealth to live comfortably for the rest of your life. Many businessmen lose sight of the bigger picture and therefore stay with their ventures long after they have exhausted its profitability.
A lack of objectivity and foresight is what makes you bet on a horse that is past its prime. However, there’s no room for sentimentality here because your goals transcend these minor stops that you will make across the way. Remember, your investments are always disposable in the way to financial greatness. When a good offer comes your way, always give due consideration to whether it outvalues or matches the long-term value your business will generate. If you find that it does, then the option is clear; it’s time to jump ship and move into greener pastures.
What differentiates ordinary individuals from High Net Worth (HNW) individuals and shrewd corporate executives, is that they realize and jump onto an opportunity when they see one. Don’t think that these decisions are made out of some type of impulsivity; these are carefully evaluated decisions that always play into their financial interests. A calculated decision is what makes these individuals let go of ventures they’ve spent their entire lives creating.
An exit strategy must always be incorporated into your long-term financial plans and it doesn’t necessarily have to be about making a profit. There are other reasons for why you might want to; sometimes people want to call it a day, they want to retire or maybe they find a different, more profitable venture they want to give attention to. Ultimately, the decision comes out in favor of letting go because there are simply many more worthwhile things that you can pursue rather than spending time in the same place.
When you’re planning out on an exit strategy, here are a few things you ought to consider:
Figure out if you want to leave
The decision to leave has to be well though out. After all, its not like your company isn’t making you any money at all, perhaps leaving will have more costs than you currently realize. When you begin to evaluate the decision to leave consider the present and the potential future of the organization. Consider whether there is more value to be generated, compared to what you make right now.
When you begin this though process, you will have to consider future financial and economic considerations as they begin to impact your own lifestyle. Once you have concluded that there is no value addition that comes out of working with the company anymore, you should leave. If there is an inch of doubt in you, then it would be wise to consult with financial managers on the best move to supplement your financial position.
How Valuable Is the Offer
In economics, there is the concept of profitable firm behavior. Keeping aside the theoretical aspects, it simply states that if producers begin generating profits or begin to generate a loss; they’re being inefficient. What we will concern ourselves with is the inefficiency point where a producer has to move out of the market; the point where they start generating a loss. This doesn’t have to be an actual monetary loss, rather it is the opportunity cost that they incur from continuing to function in the market.
How this translates into financial terms is, that there comes a time when your venture has generated enough profit for you to cover your initial investment and you have made enough money out of it for it to no longer serve your purposes. If there exist other potential investment opportunities through which you can generate higher incomes, then it may be necessary for you to simply move out of the market.
When someone comes to you with an offer, see if the money they’re willing to pay for your company is worth the value the financial value the company currently makes and how much money it stands to make for you. This reduces it to a simple cost benefit analysis that will help you decide on the best decision.
Before you decide to sign over your holdings or your organization to some third party, you need to evaluate both yourself and the buyer to make sure you get your money’s worth. See its entirely possible that they saw something in the company that was of value; after all no one spends millions of dollars on a mere whim. There is always a catch up for grabs, a catch that you can perhaps exploit for your own benefit.
Try to put your company in the contexts of the buyer’s business interests. Identify whether they’re trying to overcome their own shortcomings by buying you out, can they potentially make changes to your organization for it to become profitable? Is it possible for you to implement the same changes in your organization? If it is possible for you to do that, then maybe you don’t want to let go just yet. It might even be possible to see if you can get more money for the company in an even better deal.
Then you should also reevaluate your company to see if you’re getting the best out of all potential business deals? Maybe there is more money that you can make out of your holdings. You can only negotiate well when you know where your company stands from a financial aspect. Creating a solid bargaining position is essential for a fair deal on your holdings.
Cut Throat Negotiation
Negotiations are not simple conversations, they are places where strategic conflicts take place where each party is trying to milk the other for all that they are worth. If you know what the true worth of your organization is, then you solidify your position as a negotiator by improving the terms on which you make the transfer of ownership.
Each step of the negotiations process involves maneuvering with your contenders to create the best terms. A smart businessowner will know if they’re being lowballed and why their being lowballed, they will also understand whether they’re being made an offer that’s worth far more than the actual company’s worth. In either of these scenarios, there are decisions that you can make which will create favorable transfer terms.
Begin Identifying New Investment Opportunities
Once you’ve had an offer made and you feel that it’s a worthwhile deal on the table, always consider what you can do with the money. After all, you didn’t sell your holdings simply for the money itself, you did it because you felt that there was much more that you could do with the money. Before you execute the deal itself, consider the possible investment options that you have that could generate greater returns than you currently make.
The point we want to make is that you should leave the company under the circumstance that you can create more value from its sale than you would if you stuck with it. A good exit strategy has the entire picture mapped from the sale to the ways in which you can benefit from the sale.
Look for Legal and Financial Advice
It may be necessary for you to consult financial and legal advisors when an offer has been made. Passing over holdings may have legal and financial implications that you might not be aware off. It might even be an opportunity for you to pass on your financial burdens onto someone else and make some money out of it in the process. Have your legal advisors look at the terms and conditions of the offers so that there is no loophole that leaves you open to exploitation, then also have your financial advisors look over the terms of your agreement to make sure that the terms are truly facilitating the attainment of your financial goals.
These people can also help you assess the conditions your buyers are coming in from. Knowing of the financial and legal standing of the interested parties will also help you figure out whether you want to hand over your holdings to them. Just because you’re willing to part ways with the organization, doesn’t mean you do it in a frivolous way. Make sure that you uncover all that you possibly can to make sure that no one loses out in the deal; neither you nor your organization.
It may also be necessary for you to see if there are any potential advantages you might be letting go off when you sell your holdings. Consulting with professionals on your exit strategy can help you identify any necessary considerations that you might have missed. Remember, objectivity and complete knowledge of the implications of your actions is necessary before you place a value on your holdings. Failure to do so, could have potential disastrous consequences on your financial future.
Executing the Deal
Once you’ve decided that you have an offer you cannot refuse, then there’s nothing left for it but to execute it. But that’s really not as simple. Many buyers become finnicky if you don’t execute a smooth transition period. It is necessary that you expedite the paperwork and also prepare your organization for a change in management. Ultimately its about setting the grounds for the new management to take on their responsibilities without having to face any friction.
In this regard, you should always remember to clear out existing legal concerns or the financial concerns that the future owner of your holdings might have to overcome themselves. The best strategy is to make sure that you make all the technicalities clear to them while you are negotiating on the terms of their offer. Having cleared all of these out, you help them settle into their position to finally close the deal and move on to your personal financial goals.
Letting go of your organization or your holdings might not be very easy. A lot of times emotions become involved and they can make the path very hazy. Especially if you’ve built a multi-million dollar organization right from scratch, it’s natural to grow fond of your creation. At these moments, you should realize that you didn’t create the organization for no reason. It was supposed to serve a purpose as all of your actions do. If those functions are no longer being fulfilled by it, then there’s no reason to stick by it either.
Which is why it’s important to keep a clear head when you come across a beneficial agreement which help you come close to what’s really important: the lifestyle you’ve always dreamt of. Speak to your advisors if you have any misgivings about your decision, they might help put your actions into perspective to guide you towards the best financial decision.
Hutch Ashoo and Chris Snyder are co-founders of Pillar Wealth Management. We are a fee-only expert wealth management firm for High Net Worth and Ultra High Net Worth Individuals. With years of experience in financial planning and investment management, we can help guide you toward continued financial security.
We have 30+ years of experience and are published authors. Our bestsellers include a hardcover book titled, “Protecting Ultra High Net Worth Portfolio Estates”
We take a very active role in helping High Net Worth clients maintain and enjoy their wealth.
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