In my last video we talked about why It’s important for you to have a sale-ready company...
In this video we’re going to talk about what you should do if you don’t have a sale-ready company but still want to have a way to transition out of your business.
In my last video, we talked about why it's important for you to have a sale-ready company. In this video, we're going to talk about what you should do if you don't have a sale-ready company, but still want to have a way to transition out of your business.
So let's recap. The definition of a sale-ready company is one that someone else would want to own. If you don't have that type of business, don't worry. There are some great options you can use.
Hi, my name is Josh Patrick, and I'm the founder of The Sustainable Business.
If you don't think your company is sale-ready, I'm going to bet there's a question or two you might have about how you'll be able to transition out of your company.
You might also want to know that you're not going to be stuck in your business forever because you can't afford to leave.
If you find that you're worried about those questions, you could be asking yourself why you got into your business in the first place.
Too many business owners feel stuck about reaching financial freedom from their business. I think this is a tragedy. There's just no reason to feel that way.
You know, I own two businesses that aren't sale-ready, and will likely never be sale-ready. I'm not really worried, and the reason is really simple. I've taken the steps we're talking about in this video.
So the first thing I want you to know is selling your business is not the holy grail of business ownership. You may have been led to believe that if you can't sell your business, then you've been a business failure.
That's just plain silly. Think about all the customers that you've served, and the problems you've solved. That's what makes a business success. Being able to sell your business is just having a particular type of business, and in the United States, there are millions of businesses that will never be sold.
So there are two things I want you to think about if you don't and won't have a sale-ready company.
The first is you need to understand what pre-funding your buyout means. And what this means is instead of waiting for that big payday at the end of the day when you sell your company, along the way, you're taking money and you're putting it away for retirement. Now here's the good news about that. There are qualified retirement plans, things like 401 s, only larger and bigger, that allow you to put away as much money as you're likely ever to need for retirement. In fact, if you're over 50 years old, we've designed plans for smaller companies where the owner gets 200, $250,000 a year put into their account. Now I'm gonna say there aren't many businesses where the owner could afford a way to put that much money, but the truth is you have the ability to save at a very high level before you retire, and you have to do that if your company is not gonna be sale-ready.
And the second is having an understanding of what we call the wind down strategy. So the wind down strategy is what I call the holy grail of businesses that are not especially salable, but are great businesses that the business owner still likes to own and run, they just wanna work a little bit less.
So the types of companies that are really good for the wind down strategy are professional service firms. Financial service service firms, accounting firms, legal firms fit well in this group. You can do this with construction companies and distribution companies, but it's really pretty hard to do, because the truth is you have a set amount of customers, and you need a set amount of employees to service those customers, so it can be done with those groups, it's just more difficult.
So the wind down also works best when you are the sole owner of the company. If you have a whole bunch of partners, they're likely not gonna wind down or wanna do something at a different time schedule with you, especially if there's a difference in ages.
The third thing you have to do is you have to like what you do, and just want to slow down, and not totally leave your industry. Now, I know tons of people that actually like what they do most of the time, they just wanna have a little bit more time to do other stuff. And the easiest way to figure out how to wind down your business is to do what we call an 80/20 analysis on your broken business.
Now, we all know what the 80/20 rule is, that 20% of your inputs produce 80% of your outputs, and that means that probably 20% of your client base is producing 80% of your revenue. So if you were to get rid of 80% of your clients, you're still gonna have 80% of your revenue. So it's a really nice way to wind down your business and stay involved in the industry.
So what you're going to need to do is you're going to need to find outside resources to provide the back office services that you probably been doing for yourself on a full-time basis. On a part-time basis, you're not gonna need all those. You might need one person instead of four people, or you may need a half a time person instead of three people, but either way, you're gonna be able to cut down the amount of back office services, and it's really easier to find someone to do that for you than it is to find a buyer.
Next, it's safer doing a wind down than trying to sell your business and hold a lot of paper. My experience of watching business sales is when you have a sale of a business that's really better to be a wind down strategy than a sale, often the owner of that business is gonna hold up to 65% in owner financing. Well, and once you're into the owner financing game, it's really more dangerous for you than it is for the buyer. So if you're gonna sell your business, why sell it? Wind it down, keep the excess cashflow, and you'll have a much safer way of having money for retirement.
So the question is, what if I have a construction company, I can't wind down my business?
In that case, the easy way to transfer your business is to your managers or your children. But, and this is an important but, you have to start the planning process for your transfer early. You can't go three months before you want to leave your company, and say, "Oh, kids, I want you to take over the business." Or, "Oh, managers, I want you to buy the business from me." It's just not gonna work out well. Where I've seen manager or children transfer work well is when we try two, three, four years in advance, and start the planning process. You just must do it early. Take my word for it. It's something that's not gonna work well if you try to do it at the last minute.
It's simple to have a business where you never plan to sell to an outsider, but it's not especially easy to put it in place. You can become financially free, and even have a great retirement.
So here's how you get started.
Know that you have no intention of selling your business to an outsider. That's the first step. If you think you're gonna sell to an outsider, you're not likely to take the steps to do the inside sale or the wind down.
Number two, have a conversation with us about where you stand. We've done hundreds of these deals, we've had hundreds of people leave their business, or at least talk about leaving their business in a way that's the best for them.
And then finally, start working on a strategy that decides what's best for you, well before you actually wanna leave your business.
So I would love to have a conversation with you about this, so feel free contacting me at firstname.lastname@example.org to set up a time to talk.
In the meantime, if you're not ready to talk, download our free eBook on the Financial Freedom Project. If you do this, you'll be able to stop worrying about how you're going to leave your business, and instead, have confidence you're taking the right steps that will allow you to leave your business when you want, to who you want, in the way you want.
Hey, while you're at it, scroll down and let me know what you think about leaving your business if you don't have a sale-ready company.
Hey, this is Josh Patrick. You're at The Sustainable Business. Thanks a lot for stopping by. I hope to see you back here really soon.