Every business broker has said some version of the “prayer” below.

Please grant me the strength to tell clients that their business is worth much less than they think and the patience to have them blame me.

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We sent a small batch of emails, and several came back, such as the one below.

We also had business owners who died on the job, etc. It’s heartbreaking that twenty years of work nets a $0 sale price. That’s why I will work for nothing because you might get nothing.

Why does a business owner shut down? The business has a brand, customers, and some value…or does it? I’m guessing that the owner of this award company felt like the hassle of selling the business was not with the pittance they would receive. Again, this is heartbreaking.

We have done plenty of autopsies on situations like this, and there’s one thing in common – the owner has a job called a business name, not a business. No one wants to buy your job.

If you want to maximize the value of your business, there are some proven strategies to avoid these heartbreaking situations:

1. Make sure the business is not entirely dependent upon you. If you can’t take vacations, that’s a sign. Heed it and fix it.
2. Make enough money that buying your job could be attractive. This may sound funny, but think about franchising. Plenty of people plop down good money for a franchise that is standing behind a counter making sandwiches or scooping ice cream. In fact, a general rule in franchising is that the franchise fee should equal one year’s earning potential.
3. Be unique. Great brands and business models get premiums when it’s time to sell.
4. Have great workflows and systems and document them. Not only will this help remove you from the daily operations, but it will demonstrate to a buyer that you “have your act together” and will ease typical buyer uncertainty.
5. Lock down key team members. The buyer of your business will be very dependent upon them, so make sure they are paid well, and they are staying at their job for reasons beyond personal loyalty to you. It seems like ninety percent of business owners cite personal loyalty as a reason key employees stay. That’s great for today, but what happens when you are gone? Make sure work is satisfying. Consider locking them up with good pay, equity, or both. Know what motivates key team members other than loyalty; it’s going to come in handy when you exit.

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Five Most-Common Strategies for Business Exit

• Sell the Business to Family or Friend
• Sell the Business to Employees
• Merge or Get Acquired
• IPO
• Liquidate or Quit

For quite a few business owners, none of these methods create a desirable outcome. Here’s a typical example:

Samuel owns a profitable 3^rd-party employee contracting business nets him $500,000 a year. He doesn’t have any family members or friends that want to take over the business. The employees can’t afford to buy it and probably don’t want to. The business is not large enough for private equity firms to be interested in, and a public offering (IPO) isn’t viable. Liquidation seems silly as the business is profitable.

The only remaining option is a sale, merger, or rollup by a competitor. Samuel checked into selling the business, but the valuation came back at only $1.5M to $2M.

After figuring commissions, legal fees, and taxes, Samual would reduce his proceeds by at least twenty-five percent, giving him a maximum of $1.5M. That’s not enough for Samual to maintain his lifestyle or not fret every penny he spends in retirement.

What does Samuel do? If he keeps slogging away until his health gives out, or he gets tired of the daily grind, he will have to settle for around $1M for his $500,000 per year annuity. Ouch.

A business owner with less than $750,000 profit in an industry with a price-to-earnings multiple less than six or seven (i.e., a business not high tech, patentable, SaaS) is probably in the same situation as Samuel. That is, you have a valuable income stream from the business, but that income stream is far more valuable to you than to any outside buyer.

Fortunately, there’s a sixth exit strategy that’s gaining momentum, Half-Retirement. Half-Retiring is defined as:

Working as much or as little as you’d like. Doing only the work you enjoy and keeping your income stream in perpetuity.

An exit strategy of Half-Retirement is a viable method for many business owners to get full value from their business, and it has a hidden benefit.

A Half-Retire exit strategy is different than working until you are too old to keep working. If you work until you can’t anymore, you will be forced to settle for whatever offer you can get. Usually, that offer isn’t very attractive. The chart below compares a Half-Retirement exit strategy to working longer. You can read the detailed article on this topic (working less vs. Half-Retired here).

The biggest risk of maintaining your status quo is “hitting a wall.” No one ever thinks they will hit a point where they just can’t take the headaches of business ownership anymore, but it happens to everyone.

Today, you feel fine putting up with cleaning up the messes employees make, working longer hours than you should, and playing the catch-all for all the work no one else can or will do. Each passing year, this “daily grind” wears you down until you can’t take it any longer.

For owners who have not worked to make the business less dependent upon them, it may be hard to sell the business for a reasonable price. Why? Because now you’re desperate, and you can’t take it anymore. You just want out.

By using Half-Retirement as the exit strategy, you can avoid this disaster. Half-Retirees can create a business that is far less dependent upon them. When the time comes to sell, buyers will be excited to buy a quality business with less hidden risk than the others for sale. That should yield a quick and profitable transaction when you decide to sell.

To learn more about the six-step Half-Retire process, download the Blueprint to Half-Retirement.

The post The 6th Exit Strategy appeared first on Half Retire.

Five Common Exit Strategies

• • Sell the Business to Family or Friend
  • Sell the Business to Management or Employees
  • Mergers and Acquisitions
  • Initial Public Offering
  • Liquidation

Sometimes, none of these five methods yield a desirable result for the business owner. Here’s a common example:

Samuel owns a profitable thirty-employee contracting business that puts $500,000 a year into his pocket. He doesn’t have family or friends who want to take over the business, and the employees can’t afford to buy it. The business is too small for private equity firms to be interested in, and an IPO isn’t viable. Liquidation is ridiculous since the business is profitable.

That leaves a sale, merger, or rollup by a competitor. Samuel has looked into selling the business, but the valuation is only $1.5M to $2M.

Samuel ran the math and figured commissions, legal fees, and taxes would reduce his proceeds by at least twenty-five percent, yielding him a maximum nest egg of $1.5M, and that’s not enough for him to maintain his lifestyle.

So what does Samuel do? He keeps slogging away until his health gives out or he gets sick of the daily grind and settles for around $1M for his $500,000 per year annuity….ouch.

If you are a business owner netting less than $750,000 in one of the many industries with a price-to-earnings multiple less than seven (i.e., anything not high tech, patentable, SaaS), you are probably in the same boat as Samuel. You have a valuable income stream from your business, but it’s way more valuable to you than an outside buyer.

Fortunately, there’s a sixth exit strategy that’s catching on, Half-Retirement. Half-Retiring is defined as:

Working as much or as little as you’d like. Doing only the work you enjoy and keeping your income stream in perpetuity.

The Half-Retire exit strategy can be a viable method for many business owners to maximize the value of their business asset, plus it has a hidden benefit.

A Half-Retire exit strategy is different than working until you are too old to keep working. If you work until you can’t, you settle for whatever offer you can get, and it’s usually unattractive. The chart below compares a Half-Retirement exit strategy to working longer. You can read the detailed article on this topic (working less vs. Half-Retired here).

However, the biggest risk of maintaining the status quo is hitting the wall. No one ever thinks it will happen to them, but it happens to everyone. Today, you are fine putting up with cleaning up the messes employees make, working longer hours than you should, and playing the catch-all for work no one else can do or will do. Every year, this “grind” wears you down until you can’t take it anymore.

If you haven’t worked to make the business less dependent upon you, it’s going to be hard to sell and not fetch a good price. Why, because now you’re desperate. You can’t take it anymore, and you just need out.

If you use Half-Retirement as your exit strategy, you can avoid this expensive trainwreck. Half-Retirees create a business that is less dependent upon them, so when it comes time to sell, buyers line up to buy a quality business with less hidden risk than the others for sale. That will yield a quick and profitable transaction when you decide to sell the business.

To learn more about the six-step Half-Retire process, download the Blueprint to Half-Retirement.

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After seeing too many business owners accept this bad trade, I wondered if there wasn’t a way to make their existing income streams less frustrating. Before we get into how that works, let’s show you how much money you need to sell your business for to replicate your current income.

What is the 44% Rule?

Most small businesses sell for a multiple of annual earnings, specifically two to five times annual earnings. A recent study by Digital Exits found the average multiple across all industries was only 2.59 times earnings.

Once you sell your business, there will be costs associated with the sale (brokers, lawyers, advisors, etc.) plus a tax bill. That will amount to approximately 25 percent, which you subtract from your take.

For example, let’s use a business that makes $300,000 annually. The exit math looks like this:

$300,000 annual business income @ 3X multiple = $900,000 sales price

$900,000 sales price less 25% expenses & taxes = $675,000 investible cash.

If you were receiving $300,000 annually from the business, you would need a 44.4% investment return on your sales proceeds to replace the income you received from the business. (Run your own math in a spreadsheet)

 Should you sell your business?

If you can sell your business for an amount that allows you to never worry about money, then you should sell whenever you desire. However, most businesses cannot sell for a sum that would furnish a stress-free retirement. If that includes you, don’t take too little in return for decades of hard work just to stop the grind.

A new trend: Half-Retirement

Exit planners predicted a tidal wave of businesses would be for sale when baby boomers turned 65. Books such as The Ten Trillion Dollar Opportunity predicted there might eventually be too many businesses for sale and cause an imbalance in the market.

The tidal wave never happened

To everyone’s surprise, many boomers did not exit their businesses at 65. They didn’t pass the business on to their kids; they didn’t do an ESOP; they didn’t take any type of exit. Instead, they found a way to radically reduce the stress of owning a business and retain their income stream.

This is the Half-Retire Revolution. By keeping their income stream, business owners bet on themselves instead of insurance companies or the stock market. They are refusing to give up the outstanding returns they make on the investment in their own business for minimal bond returns.

These owners are also saying “No” to their business frustrations. By eliminating the non-monetary reasons businesses are sold, the owner can enjoy work, retirement, as well as excellent income.

I have seen many business owners successfully Half-Retire. Unfortunately, you can’t just flip a switch; it’s a process. Here are the steps we have seen business owners take to Half-Retire:

1. Find a compelling reason to #halfretire. This is the “magnet” that will pull you towards the right activities.
2. Adjust your mindset. There are probably legacy mindsets that are holding you back. Remapping these mindsets can be magical, and flip the switch so you can cut your workload.
3. Reduce the business’ dependence upon the work you do. It’s alright for the business to depend upon your expertise, skill, judgment, and connections, but it’s not alright for the business to need you eight hours or more of each and every workday.
4. Re-leverage assets to allow for growth. Every business has under-leveraged assets. By re-leveraging them, you can recover the value lost by your time away from the business.
5. Set it on autopilot. Create a quick and easy management structure to provide the insights you need to direct the business in a small amount of time.
6. Enjoy the spoils. Half-Retirement offers the best of everything: excellent income, security, and work-life balance. You have worked hard to build this business, now enjoy the rewards!

The Half-Retire Blueprint is below. Where are you in the process?

Download the Half-Retire Blueprint

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Why have so many Baby Boomers decided not to sell their businesses?  We had a few guesses, so we decided to poll small business owners to find out. In order to participate in the study, the participant must have owned the business for five or more years and be at least  60 years of age. Here’s what we learned:

• 46% still enjoy their work
• 59% were concerned they would be bored if they retired
• 32% said they could not afford to stop working
• 14% had previously retired and did not like it
• 30% were concerned with what would happen to their employees if they sold

It seems that there are a lot of good reasons for many business owners to keep working.  We also found an interesting dichotomy between  business owners aged over 60. There was one group who might prefer to retire but was still grinding it out and another group that was running their businesses much differently in their sixties than they did in their younger .

In short, the first group was still beholden to their business, trapped and unhappy. The second group was much happier because they found a way to have their businesses serve their economic and psychological needs.

We found several key distinctions between the group of “trapped” business owners and the more content group. Some of these differences were:

• The trapped group was a vital cog in the day-to-day operations whereas the second group was not.
• The trapped group tended to have fewer employees than the second group.
• The more content group tended to invest in mentoring key employees vs. the trapped group focused more on “doing the work.”
• The content group had something pulling them away from work whether it be an avocation, charity work, travel, or time with family. The content group had a significant reason to minimize their work hours.

Many experts view the Boomer exit delay as a negative trend; we do not. The combination of technology and  increased human longevity allows Boomers to extend the spoils of their hard work building their businesses. Done right, Boomers can leverage their businesses to fund a world-class retirement.

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If you have ever owned a stock that is taking a nosedive , you know this feeling. At some point, you just want to stop looking at the chart going the wrong way, so you sell…right at the bottom (at least I do). Why would a savvy business person sell at the absolutely (no hyphen) worst time? Because it’s not about the money;  it’s about making the psychological pain  go away.

So, what’s my point? I want you to separate the financial aspect of selling your business from the psychological aspect. Selling your business is one of the most important decisions of your life, so let’s get it right. Once you separate these aspects, you can make a better decision.

Let’s run through some of the common psychological reasons business owners bail out.

1. They’re tired of the BS . This one is the closest to dumping a stock. If the stock is bad, dump it. If you are fed up, it’s time to rethink things. Your business produces income. It has a brand and equity. Separate the personal from the financial. Ask yourself, “If I could shed the BS , how would I feel?”  Frankly, most business owners cannot even imagine the BS  going away. Try. We have seen many business owners who work two half (no hyphen) days a week and have a viable business. If you could do that, would you feel the same way?
2. They’ve lost their passion. I own a mining stock and I’m not that passionate about copper. There is an unspoken presumption here – the business can’t make money if  you’re not passionate. That isn’t necessarily true. It may be true that the business may not grow without your passion. It also is probably true that the business will suffer without it. However, will the business continue to earn money without it?
3. They don’t have the energy  they used to. That makes two of us. Does the business need your “work” or does it need your guidance, expertise, and leadership? I’m inclined to think that your wisdom is worth more to the business than your toil. Imagine separating these two.  If you could give your wisdom but not your toil, would you sell?
4. Your  partner wants to spend more time with you . This is a common concern for many business owners, and again, it’s predicated on the assumption that business ownership and the job of CEO are one. They are two independent functions, but most business owners combine them. We can own stock in Google without showing up for work. Why can’t we enjoy the benefits of ownership in our own company without the pressure of a job?

There is no one-size-fits-all solution for transitioning into retirement. However, I do encourage you to explore every option before making this life-altering decision. I have seen many business owners find a way to keep their business income but shed the daily hassle of business ownership. Before selling, I encourage you to strongly consider this option as a viable way to maximize the enjoyment of your Golden Years.

The post Most Businesses Aren’t Sold for Financial Reasons appeared first on Half Retire.

• Life happens regardless of the economy. You may feel like you can’t slow down currently, but eventually, you will need to slow down. Starting now yields benefits now.
• Half-Retirement is about turning your business from a source of hard-earned income to a source of equity income, not about loafing around.
• When you Half-Retire, you save your energy for the most important aspects of the business instead of burning yourself out trying to do everything.
• You can make more money Half-Retired than you can with your current model, if you do it right.
• Running any business from a Half-Retire mindset yields a business that runs better, and that’s good during any economic condition.
• During slow times, you can speed your Half-Retirement because there is not as much work requiring your attention.

Many business owners are victims of inertia. They believe the solution to any problem is to do more of what they already do. In times of uncertainty, the “more of the same” plan or the ‘try harder” plan rarely work. Trying times bring a rare gift, the opportunity to rethink everything. In accounting, they call this zero-based budgeting. With this technique, you ignore current spending levels to avoid the temptation to adjust or tweak them and start over. With a clean slate, you can rethink and redesign the business to reflect your desires without the shackles of how things have always worked. A tough economy provides the perfect opportunity to challenge your business model, systems, practices, team members, and management style. You can literally redesign the business to better fit the new realities. Ask yourself, “If I were starting a new business today, would I start a business like this? If so, what would I do differently? If I would not start something like my current business, what would I start?” I’ve seen clients create quantum changes in their businesses by focusing on the opportunities provided by a challenging economy vs. hunkering down and fighting through it. When times are tough, Half-Retirement may not mean working from the beach in Europe, but it can still improve your business and your life, in good times or bad.

Curious about Half-Retirement, take the free course.

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