A number of years ago the late Fred Murr asked me, “How old do you want to be when you retire?”
I said, “I don’t know. Seventy five, maybe?”
He asked, “Are you serious?”
I said, “Fred people retire and they DIE!”
I love my job. I’m going to keep on doing it forever. Well, I don’t intend to stick with the job until I die. But I do intend to do it for a long time because I’m enjoying what I do.
But we all need to create an exit strategy from the companies we own and operate for a couple of reasons. One of them is the bulk of our wealth may be tied up in equity in that company, and its going to be very difficult to retire without taking it with you.
So, let’s talk for a little bit about what you need in an exit strategy.
When Will You Sell, and for How Much?
You’re going to need two numbers. The first is, you need to know how much to sell your company for. And the second is you need to know when you’re going to do that. So, you need an amount and a timetable. And once you have that any good marketing consultant can help you get there.
What’s the amount? It’s a sum big enough that you could invest it, live on the interest, and never touch the principal. There are a few other strategies, too, but that one’s my favorite.
If you’re going to be retiring by selling your company, the first thing we need to do is determine out how much money you need to retire on. And the second thing we need to figure is will your company sell for that amount.
For most of us that answer is “no,” and we’re going to have to grow the company to create enough wealth to sell the company and be able to spend the rest of our time with the grandkids, or pass the company along to the kids, or sell that company to a total stranger for cash, or help the employees to buy out your interest in the company. But one way or the other you need to plan your exit from the company.
I don’t care if you just started your business yesterday, or if you’ve been doing it for 30 years. Trust me, you need to plan what’s going to happen when you no longer choose to come to work everyday.
What Do Buyers Want?
- Operational Excellence
- Consistent Growth (with no surprises)
- Predictable Cash Flow
The first thing in determining your selling price is to figure out exactly how much you’re going to need. And whether you take it as a salary, or owner distributions, or investor dividends, you’ll have to replace that much money.
I’ve prepared a step-by-step booklet called Stuffing the Golden Goose. Download your FREE copy. It will help you to figure out exactly how much you’re going to need to fund your retirement, and what you need to sell the company for to be left with that much. It’s straightforward and the steps are quite simple.
Case Study – Beckley Imports
Let me tell you about my client and friend, Steve Beckley. He called me some time ago. He’d participated in a group call that I was hosting and said, “Chuck, can you hang on the line when everybody else hangs up?” I did. He said, “I need your help. I need to create another million dollars in top line sales in order for me to sell this company in three years.”
I said, “I’m flattered that you think I can help you with that, but you’ve caught me at a time when I’m maxed out on the time I have available. I can’t help you now.” He called back the next month. And the month after that. Until finally I said, “Steve, my schedule has just opened up.”
I flew to Des Moines where Steve Beckley owns and operates Beckley Imports.
At the age of 22 Steve Beckley was the Service Manager of the local Mercedes dealer. He quit. He opened his own shop. A single bay. He worked on import automobiles. Steve’s belief was that people who paid a lot of money for a precision automobile would be willing to pay a little bit more to keep it operating at peak efficiency. And he was proven right.
They kept on growing. He now has a state-of-the-art, 15-bay facility in Des Moines.
Starting the Research
I joined him there. We spent three days digging through how his operation works. Where do customers come from? How long do they stay? Where do they go? Which ones are very valuable? Which ones are not? We mystery shopped his competitors.
I said, “Steve, I love the postcard campaign you’re using to draw customers in. The only suggestion I have is they all say the same thing – ‘Dear Import Auto Owner.’ I promise you somebody that drives a BMW does not consider himself an import auto owner. He considers himself a BMW driver. Anybody who’s got a Rolls Royce doesn’t consider himself an import automobile owner.”
We redid those postcards so that the Saab owner got one that said, “Dear Saab Owner.” And the Mercedes owner got one that said, “Dear Mercedes Owner.”
One of the things I loved about working with Steve is he implements! I gave him that recommendation on the 10th of February, and by March he had the new postcards out. He called me about the 7th of April and said, “Chuck, we’ve just had our best month in the history of the company. We are $50,000 above where we predicted we’d be for the month.”
I looked at it and said, “Steve, you’ve got one customer leaving out the back door for every two you’ve got coming in the front door. What’s happening?”
He said, “Well, some people sell the car and don’t need us any more. Some trade it in on a new one and now they’re covered under the factory warranty. Some of them leave the community or they die. But, you’re right. That is an awfully high turnover.”
So, we studied the operation, we came up with a customer retention program, and cut the attrition to about half.
Well, now we’re getting very close to that million a year, and it hasn’t been a year yet.
Owning an Asset, Not a Job
Steve decided the next thing he must do is take himself out of the picture because nobody wants to buy a job. They want to buy a company that is functioning well without outside supervision. So, he hired a manager. A very good manager. And that manager did things so well that the staff started saying, “Steve, do you think you could go home? You’re getting in the way.”
Steve took his mother to Turkey because she’d always wanted to see it.
The he visited an orphanage in Africa that he’d been supporting for a few years. He brought his tools this time and spent the next two months fixing and tuning up every Range Rover automobile they had. That was the only brand they bought.
When he got back to America a couple of his buddies said, “Get your bike out.” They rode their Harleys from Des Moines to Seattle and back. They stopped at some national parks along the way.
Then he called me. And he said, “Chuck, I’ve decided not to sell.” I asked “Why is that?” “Because I’m now making more money than I’ve ever made in my life, and I don’t have to go to work any more.”
Revising the Exit Strategy
Steve has hit on something really important.
The exact attributes that make your company attractive to a buyer also make it a great company to own and operate.
If you don’t have an exit plan, it’s time to start one. You need to run through the material in the Stuffing the Golden Goose booklet to calculate how much money you’re going to need to support yourself in retirement. Once you have the amount you’ll need and have determined the timetable, get a good marketing consultant to help you bridge the gap between them.
For most of us the company we own and operate is the biggest asset we own. You need to start planning your exit from that asset, while you’re actively fishing for customers.
How many years before you want the choice of whether to go in to work today? Start a conversation with Chuck by email at ChuckMcKay@ChuckMcKayOnLine.com. Or call him at 317-2073-0028.