Staying and growing the business has measurable long-term benefits, but what about Thomas’s life in the short term, while he still owns the business? The most obvious benefit of not exiting now is that he maintains his current level of spending. But if Thomas is to stay, he cannot continue to put in the 60-hour weeks required to continue to single-handedly manage everything that goes on in the business. He’s just too burned out.
Thomas understood his business broker’s point about buyers not paying a premium for companies that relied on their owners for success and growth. To sell the business successfully based on a higher multiple of the company’s current cash flow, that cash flow would have to continue with little disruption when Thomas exited. Those arguments were compelling. But it was the prospect of years of 60-hour weeks that made Thomas very receptive to the idea of changing his role.
In Thomas’s company, all roads led to his desk. He was the hub for all decisions related to employees, customers, and vendors. The business depended on Thomas’s continued active involvement to maintain revenue and profitability. Similarly, Thomas’s financial security depended on his involvement in his business—a business that he, like most owners, was increasingly anxious to exit.
Thomas made the decision to grow his business so he could exit successfully. If that meant changing his role, he would do it. He would transfer his day-to-day and management responsibilities to others. That meant his existing management team if they were capable and trainable, or new managers that he’d recruit if they were not.
If you are the hub of your company, you may be doing the steering, but you’re also doing most of the pedaling. Your successful exit requires a business that does not rely on you to move the vehicle forward. A successful exit means you are not doing the pedaling. Your business must be able to move forward without you, with little to no loss of momentum and little or no effect on its cash flow.
For most owners, an essential precursor to their successful business exits is to create a business that is not dependent on them. An owner-independent company has a strong management team that can operate and grow it without the owner’s hands-on involvement.
When owners do the work to create owner-independent companies, they give themselves a precious gift that they never expected, the gift of time to use as they like. Discretionary time—not growing value or achieving exit goals—is the hidden benefit of exit planning. Some of us call that “sweet freedom.”