How to Exit Your Business – WITHOUT selling it!
My latest book, The False EXIT (coming summer 2023) isn’t a book about selling your business. Instead, it is a book about not selling your business. It’s about keeping the golden goose, rather than killing it.
In it, I’ll show you how to turn your business into a golden egg-collecting machine. A factory, which reliably produces golden eggs on a regular basis, but doesn’t require you to work on the production line.
A False EXIT removes the business owner from the frontline. No longer running the business but instead owning and optimising it.
Instead of being the godlike genius through which everything runs (and without whom nothing runs!), you’ll become the majority shareholder and chief architect of your business.
Now, a False EXIT isn’t about spending all day on the golf course or sipping cocktails in Barbados as part of a four-hour workweek. No, it’s about taking a step back from the day-to-day operations of your business. It involves removing yourself as the bottleneck, instead becoming an observer of your business, rather than an operator in it.
It’s about letting go – and leaning on your team.
Most small business owners (including me) really struggle to let go. You’ve created this little world where everything works exactly the way you want it to. The minute you hand control over to someone else, your business seems destined to swerve into a ditch until, at the very last minute, you grab the steering wheel, and regain control.
This is where most small businesses remain. In 2021, there were an estimated 5.5 million small businesses in the UK. 4.2 million of them (76%) had no employees at all. Perhaps you’re one of those 4.2 million one-man bands?
Maybe you tried hiring someone in the past, and when that person didn’t behave exactly as you would, you snatched the steering wheel back and regained control. After this happened a few times, you said to yourself: “I’m the only one who can do this. I wish I could just clone myself!”
Well, I’ve met many business owners like this. They convince themselves they are the only person capable of doing things properly. They believe without constant micro-management, their company will descend into chaos.
These people don’t really own a business. Their business owns them. What would happen to your business if you went on holiday for a month? If you think it would all fall apart, you’ve designed your business to rely on you.
A False EXIT isn’t about cloning you. It’s about turning your business into a predictable machine, designed in your mould. Creating systems and processes that help your team to think and act like you. Coaching your team so they know why you think and act the way you do. They’ll never be you. Nor will they ever think, behave or act the way you do. Because they’re not you. There’s only one of you.
Once you’ve implemented a False EXIT, you will own a business that doesn’t rely on you. One which still benefits from your expertise and experience, your value and strategic input.
Even better, your business won’t suffer from reliance on you as the godlike genius through which every decision must be run.
No longer will you hold your business back by being the bottleneck.
You’ll still own the golden goose. But the goose won’t keel over and die if you take a few weeks off!
When to exit a business?
CD-Baby founder Derek Sivers used to hate going to the office. He found himself constantly bombarded with employee questions.
Unable to take any more, Derek seriously considered moving to Hawaii, changing his phone number and not giving his staff the new number. Instead, he built a team of the right people, who shared his vision and values.
He invested a lot of time in sharing his decision-making framework. Explaining not just “What would Derek do?” but “Why would Derek do that?”. Linking each decision back to Derek’s vision and values.
Sivers created systems and processes. He collated them all in a manual – then found that he no longer hated going to the office. No longer was he distracted. His employees stopped asking questions. Because they had Derek’s decision-making framework, they no longer needed the man himself.
Derek could book a holiday to Hawaii any time he wanted, knowing his business was in safe hands.
He could have taken a False EXIT. He actually ended up building a business that was insanely sellable (because he stopped running it, and started owning it). In 2008, Derek Sivers sold CD Baby for $22 million.
Not bad for a business that Derek would have fled to Hawaii to avoid running.
If the thought of moving house, changing your phone number, and not telling anyone where you’ve gone, and when (or indeed if) you’ll back appeal to you, then it’s definitely time to consider an exit plan.
Here’s a little exercise to see how ready you are to actually exit right now.
For each statement below, rank your current situation on a scale of 1 to 5. (where 1 is weak, and 5 is strong).
- I have a clearly defined vision.
- I have 3-5 clearly defined core values.
- My core values are lived and breathed.
- I have the right people on my bus.
- I have ejected the wrong people from my bus.
- I have the right people in the right seats.
- I trust my people to make decisions (up to £______)
- My people have access to (and use) my decision-making framework.
- Everyone in the business knows our primary flywheel by heart.
- The primary flywheel is turning efficiently.
- The flywheel doesn’t rely on me.
- I have captured (and scored) my second-tier flywheel.
- We have systems to ensure things run smoothly.
- Our systems are actually used.
- I use red flag alerts to trust, yet verify.
- I delegate but don’t abdicate.
- I build pipelines, rather than carry buckets.
- I know how to give the greatest value to my company.
- I could take a 14-day holiday, and leave my laptop/phone at home.
- I don’t run my business. I own my business.
Now add up your scores. Each 1 counts as 1 point, 2’s give you 2 points. 3’s are worth 3 points, and so on.
There’s a maximum score of 100. This gives you a percentage figure to indicate how ready you are to take a False EXIT.
Don’t be upset if you get a low score. This shows you where your pipeline needs work. Look back at any 1’s and 2’s you scored – what needs to happen to turn them into 3’s or 4’s?
On the other hand, if you scored highly, why not consider taking a False EXIT for a test drive? You could start by simply working from home one day a week.
You’ll still be able to put out any fires that crop up, but you won’t be in the office lighting them! If WFH goes well, why not take things a little further – and plan a day off each week?
Pick a day, and tell everyone: “I don’t work Tuesdays”. “I’m keeping Wednesdays client-free”. Or simply “Fridays are a family day from now on”.
Then, if Won’t Work Wednesday goes well, extend your test drive even further. Take a week off. If you’re feeling brave, try leaving the country (and your laptop/mobile phone at home!). Once the thought of a week away from your business no longer brings you out in a cold sweat, try dialling it up to a fortnight – then a month – then a quarter!
A heads-up: each time you extend the length of your exit, something will go wrong. Some fire prevention work will have been overlooked. Cracks in the pipeline will make themselves known. The “rule of 3 and 10” made famous by Hiroshi Mikitani, explains why. Mikitani discovered that everything breaks at predictable intervals when companies triple in size.
Time away from your business can be a gateway drug.
Many former workaholics discover a newfound lust for life outside of work when they step off the hamster wheel. Especially when they consciously plan what they want out of life. Time at work suddenly becomes more fulfilling, with less draining day-to-day drudgery.
Even better, their time out of work becomes invigorating, with the freedom to truly live their best life.
How to exit a business
So, how will you exit your business?
Believe me, you will exit it one day. If you haven’t got an exit plan, then it will likely happen in one of two ways:
- You will die.
- Your business will die.
Sorry to be so morbid, but those are the facts. Most businesses part company with their owners via death. Either of the business or the business owner.
How do I exit my business? Well, assuming you’ve both a desire to exit and a business you could exit, what sort of exit is right for you? Let’s look at the options.
Option 1: Full Sale:
The traditional, well-worn path of simply selling your business. There are many advantages to this option. You’d get to sail off into the sunset (usually) with a nice big payday. You could benefit from Business Asset Disposal Relief, paying as little as 10% tax (at the time of writing) on the sale. Once you sign on the dotted line, you could be free of all responsibilities. You need never worry about the business ever again.
Sounds good, doesn’t it?
Of course, if it were that easy, everyone would be doing it. There’s a lot of work to be done. First, you have to prepare your business for sale. It has to be sellable. Then, you have to find a buyer – someone with pockets deep enough to buy it.
Next, you will need to negotiate with the buyer. Of course, they won’t want to buy a lemon, and you don’t want to sell your baby for less than it’s worth. Brokers can negotiate for you – but remember: their incentive isn’t necessarily to maximise your sale price. It’s simply to ensure that a deal gets done, so they can earn their commission.
Next are two words that still strike fear into my heart: due diligence. Due diligence is really just a checklist. There to ensure that both parties are clear as to what’s included in the sale, and what’s not – as well as any skeletons that could be hiding in the closet.
However, my experience of due diligence involved two weeks working full-time to assure our potential purchaser (or, more accurately, our purchaser’s solicitor) that:
- The sky wasn’t falling.
- We didn’t have Shergar and Lord Lucan tucked away somewhere.
- Our website wasn’t a front for a Colombian drug lord.
I’m joking – mostly.
Finally, once you’ve prepared your business for sale, marketed the business, found a buyer, negotiated terms, completed due diligence, and paid the solicitors, brokers, and taxman their slice of the pie, then you can pour yourself a pina colada, and head to the golf course to spend (what’s left of) your cheque.
Unless, of course, your buyer has insisted on an earn-out. In which case, you might be required to turn up for work again on Monday morning. Or indeed every morning – for the next few years, before getting your hands on the money.
Then what? When you finally have (what’s left of) the proceeds from selling your baby, what’s next? Are you going to sit around letting your life and the world pass you by? What reason will you have for getting out of bed in the morning?
Are you going to spend the rest of your life on the golf course? Or are you going to get right back out there and start your next company? Because there’ll be no turning back once you’ve killed the golden goose.
Option 2: Partial Sale:
Could you enjoy the best of both worlds? Sell part of your golden goose, enjoying a lump sum payday plus a share of all future profits?
Well, Felix Dennis, founder of Dennis Publishing, has very clear views on diluting your shareholding.
“Never, never, never hand over a single share of anything you’ve created or acquired if you can help it. Nothing. Not one share, to no one, no matter what the reason, unless you genuinely have to.”
I think it’s pretty clear where Dennis stood on partial ownership. And I have to say, I agree with him for the most part. Very rarely do I see small business owners sell a slice of their business and not regret it. They think they’re bringing someone in to spread the load. A partner to share the trials and tribulations, and cash in a little of their hard-earned equity at the same time.
Instead, they end up with someone who wants to take the business in a different direction. Suddenly, they find they’re no longer in control of their baby. They find their success (and future income) dictated by someone else. For someone truly entrepreneurial, this can be devastating.
It’s often just as bad for the new shareholder who’s just bought in. After all, they believe they’re buying into an established, successful business. One they can add value to, helping take it to the next level. Only to find that the incumbent owners are clinging onto their own vision and strategy for the company, rebuffing all suggestions for anything different, proclaiming “That won’t work. We’ve always done it this way!”
A partial sale can work – but it’s very rare.
Option 3: Management Buy Out:
Do you know who would be the perfect person to buy your business? A group of people who already know your business inside out. People who already know exactly how to run things, and could really hit the ground running.
Yes, I’m talking about your current team – either via a Management Buy Out or a sale to an Employee Owned Trust. When thinking about how to exit a business, there are plenty of advantages to this option – it’s tax efficient for you as the seller. Due diligence should be a formality, and there’s very little risk on either side. Your team knows what they’re buying, and you know who you’re selling to.
You don’t need to spend any time or effort marketing the business to potential buyers – and can often maximise your desired valuation, as your team will relish the continuity of secure jobs, the prospect of a share in the profits, and the power of a real say in how the business is run.
But it’s not without its pitfalls. First and foremost, there’s a huge difference between being an employee, and being a business owner. Not everyone wants to own a business. Many people value being able to clock off at 5pm each evening and leave work at work until the next day. They don’t want the added weight of being responsible for other people’s livelihoods, the company’s success depending on their decisions, or dealing with all the red tape. They just want to turn up, do their job, and go home.
Making them shareholders in the business isn’t going to make them think or act like business owners. And if everyone becomes a shareholder, then suddenly, everyone wants a say in everything the company does. Then, before you know it, all decisions are made by a committee.
Assuming your employees do fancy themselves as business owners, you then have to consider whether they can afford to buy the business. Your team is unlikely to have large piles of money lying around waiting for an acquisition opportunity to present itself. Of course, they may be able to borrow against the company’s assets to fund a purchase. You could even agree to fund their purchase yourself – with the business effectively lending your team the money to buy the business, with repayments coming out of future profits.
A word of warning if you do go down this route. You’re effectively becoming a money lender, and putting up your golden goose, your baby, as collateral – then walking away and trusting others to keep the ship on the same course. If they happen to mess things up, they’ve put very little skin in the game, while you’ve risked everything. Seller beware!
Option 4: Do Nothing:
This is by far the most popular option. However, there are only four ways to exit your business by doing nothing:
- You’ll exit your business feet-first, in a box. In other words, you’ll just keep running it until you drop dead.
- You’ll close the doors and retire. By treating your business like a job. Then reach a certain age (or level of health) and walk away, closing the doors on your way out. Do this, and you’ll receive £0 capital value for your shareholding.
- Your business will fail, and eject you. More than 300,000 businesses fail in the UK each year. If yours is one of them, you will be ejected, rather than exited. Do this, and you may still be liable for some of the company’s debts.
- You’ll get a fairytale ending. Out of the blue, someone will magically wave a large cheque at you. I’m afraid the only place this happens on a regular basis is in Hollywood movies.
Option 5: A False EXIT:
First, the bad news. With a False EXIT, there’s no lump sum, no sailing off into the sunset, and no guarantee that your golden goose will continue to furnish you with shiny golden eggs on a regular basis.
But there’s also some good news. There’s no capital gains tax bill, no brokers or lawyers to pay, no due diligence, and no immediate termination of your income. With the right strategy, processes and team in place, your business could actually continue to grow – without requiring you as an essential cog in the machine.
If you wanted to, you can choose to work on the business, building pipelines rather than carrying buckets. Do this, and you’ll be adding value to the business’s balance sheet, and helping protect that future supply of golden eggs.
Because you’re no longer the godlike genius through which everything must flow, the business won’t grind to a halt without you, and you’ll have the energy, headspace, and time to realise your business’s full potential – giving you purpose, and a reason to get out of bed in the morning. That’s the power of a False EXIT.
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Could you improve your business by just 1% this week? Note: I said “improve”, NOT "grow" your business - growth might not be what you need.
More customers, more leads, more staff, more stress might be the last thing you need.
You might actually need more profit. more margin. more leverage.
More time, less stress, and a business that relies less on you as the "font of all knowledge and the godlike genius through which everything must flow".
For you, the answer could be a smaller team, less customers, and fewer products.
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