What is perfection to you? An elusive goal that serves as something to strive for or an impossible level that becomes self-defeating if you strive for it?
I was struck by a piece published in The Times this year entitled ‘There’s no such thing as a perfect exit strategy’. It was written by Helen Pattinson, who with her husband co-founded Montezuma’s Chocolates.
Her story is not unusual although every situation is different in some respects. It tells of the immense pride and success in building Montezuma into a great and well-loved business. Helen also talks about the difficulty of finding a way to run the business without the daily stress and constant worry. Eventually, this led to a decision to exit.
The exit they chose was to sell the business gradually, taking on major investors such as private equity. This then became challenging as the founders faced the prospect of gradually stepping back, relinquishing control but retaining some involvement. After founding and running the business this is a hard transition as new owners often have different goals and different ways of operating. For some this method of exit can feel like death by a thousand cuts. Helen wonders whether a trade sale might have been better – possibly if they could have secured a clean break but that’s often not available to founders who may be required to stay involved for a transition period and have payments contingent on achieving targets.
The article also talks of the difficulties of being a former business owner. Helen talks about a feeling of irrelevance after being such a critical part of the business; having time on her hands but seemingly lacking purpose or at least as yet undecided on what next.
The article isn’t one of optimism and success even though Montezuma’s Chocolates was a great business and Helen and her husband have been able to exit and in so doing secure their futures. So the notion of perfection when it comes to exit planning does seem a difficult one to reconcile.
My take on the story is three-fold. Firstly the commonly encountered challenge of running a business in a way that is personally sustainable. Personality and operating style play a part here so simply saying recruit a great team and delegate can be simplistic. However, carrying the business on your own shoulders can be a burden too much and a combination of people, process and culture can ease the load.
The second take-away is deciding on the type of exit. There are numerous exit options from an outright sales, partial exit with investors taking a stake, management buy-out (MBO), employee ownership trust (EOT) and not selling at all but ‘exiting’ by stepping back from day-to-day involvement. There’s a lot to work through and if time allows the better option is to keep a number of routes open until a definitive decision is required. This is one of the reasons we work with businesses looking at two to five years until exit as it allows various options to be considered without committing too soon. The type of exit is also related to the ‘what next?’ question. For most owners, the sale of a business only happens once and it needs to set them up for whatever comes next, financially and otherwise.
This then links to the third take-away: the reason for wanting to exit. An important consideration and one worth serious reflection is whether an exit is being driven by a desire to get away from something, or the attraction of what an exit enables. In short, is the exit to get away from negatives or to move towards positives; what are the push and pull factors? Even if the burden of running the business is getting too much it’s worth persevering until a better option for your future emerges. That might be a new business, an employed role, retirement from work or whatever works. This perseverance allows time to plan and execute an exit properly. There may be an exception if the business is suffering as a result of how you are or aren’t coping with the burden of ownership or if your health and well-being is being affected.
Three of our clients have finalised their exits in the past weeks. All three owners have to some extent agreed to some involvement in the business but done so without contingent payments and on their own terms – both how long they are involved and how much time they commit. Are any of them perfect examples of an exit? Probably not, all have had wrinkles but on balance all three are happy with their outcome. Look out for our case studies and testimonials over the coming weeks.
Perfection is difficult, maybe by definition it’s impossible, however planning and execution supported by good professional advice can take you a few steps closer. We are happy to have an initial conversation about your exit options as early as possible and certainly before you get to the point of just wanting to get out. Contact us today to explore how we can assist you with your exit strategy.
The article appeared in The Times <click here> subscription required.