by Margaret Heffernan - Thursday, 6th September 2007 -

I’m 68. I’ve been running this business for 20 years. And there are so many other things I’d like to do.”

Richard, the MD making this comment, wasn’t complaining. His company is doing well and he’s still full of ideas, energy and a zest for growth.

But, like so many business owners, he’s come to see that his company is the most valuable asset he’ll ever own. He’s proud of that, and he should be. But how does he now realise its value?

He can, and will, keep working because he loves his work. But he’d like to get rid of his mortgage, have more time at home, maybe even a holiday.

He can’t afford to do any of these things unless he can capitalise the asset which is his business. Which means that he has to sell some or all of it.

Most entrepreneurs don’t think about exit strategies. As they’re starting the company, it feels irrelevant. When the business is thriving, other issues feel more urgent. So when the time comes, it may be too late.

Research shows that most exit strategies take about ten years to come to fruition.

What choices does Richard have? His company isn’t big enough to go public. His children don’t work in the business. So he needs to sell it.

His employees aren’t going to buy the business so he can either find a partner who’d like to buy in or another company that will take him over.

If he sells, he’ll need to decide whether to stay on with an earn-out to boost the price, or whether to walk away when the deal is done. Every one of these choices is fraught with emotion and risk. And he’s 68.

If he wants the chance to do other things, he needs to make his mind up now.

Sitting in his board meeting, it became clear to me that Richard’s needs are now distinct from the company’s needs.

His managers are quite content to keep everything going the way it is: continual improvement, modest growth. But that won’t work for Richard. He has to take this tough decision alone. It’s his company and his life. And all his choices are painful ones.

I’ve watched a lot of business owners confront this dilemma. Undoubtedly the calmest are those who’ve done it before; they’ve always thought of their business as an asset to be developed.

They’re less involved in operations, ensuring that the company can stand on its own two feet without them. They have strong, united management teams.

They get rid of the customers from hell who consume time but deliver low margins and they focus on their bigger, higher value customers. They look for the weaknesses in their business and fix them.

They scour the competitive landscape for potential purchasers.

Most of all they start, slowly but surely, disentangling themselves emotionally. The passionate identification between business and owners starts to cool.

It sometimes looks like they’re losing interest but, of course, they’re not: they’re just extremely focused on finding the right deal. And, when they do find it, they move fast to secure it.

I think that’s why the most orderly transitions I’ve witnessed don’t involve earn-outs. By the time the deal is done, the owner has already left, mentally. They may stay for a month or two but not longer.

It’s very painful being in a business you no longer control. And it’s worse for employees who don’t want to be disloyal but need to secure their future. While earn-outs appear to ease the change, I’ve only ever seen them prolong the agony.

It’s a rare entrepreneur who can come to work and not be in charge.

Why do exit strategies require ten years? Maybe half that time is spent on getting the company well and truly fit for sale, with all the financials and operations that involves.

A few more years may be needed for the owner to detach himself from the day-to-day and start looking outside instead of in, getting to know who the potential buyers are.

Some of the best sales I’ve seen have been to competitors whom the owner has known well for years. They know who they’re selling to and feel confident that they leave their business in good hands. That makes the deal itself very quick.

Over the last few months, I’ve asked a lot of entrepreneurs about their exit strategies. Most hate the question. They love their businesses. Exit? It’s the last thing on their mind. They never want to quit.

Which is just as it should be. Nothing appals me more than the brash entrepreneurs who’ve worked out their exits before they’ve even made an entrance.

But don’t leave it too late. Thinking about exit strategies early makes you focus on building an asset instead of just a job. It gives you choices, before you’re 68.

Who knows? One day you may not want to work forever. Or you may have a new idea....