Motivation and Objectives in Exit Planning: Defining What You Want Out of Your Business Sale

When it comes to selling a business, developing a thoughtful and thorough exit strategy is essential. There are many steps to preparing a business for sale, from understanding the true worth of the business to making pre-sale enhancements to determining the right time to sell. There are many ways to approach selling a business. The longest route would be the one that includes making value-enhancing business improvements prior to a sale listing. The midrange route would involve offering the business for sale in its current condition. The shortest route would be liquidation by selling not the business but rather only its tangible assets, often at bargain prices. In order to choose the best exit route, it’s important to define and prioritize your exit motivations, timeframe, and objectives. Selecting an exit approach that achieves your financial objectives, sale-approach objectives, and after-sale objectives requires a worthwhile investment of time and thought.

Defining Your Motivations and Objectives

Before you can zero in on your preferred exit approach, you need to do some pre-exit self-reflection.

• What circumstances are driving your desire or need to exit, and how urgent or flexible is your exit timeframe?
• What do you want to achieve financially from your business sale?
• Post-sale, do you want to exit immediately, do you want to remain involved with the business only during the ownership transition, or do you want to stay involved for a longer period?
• Post-sale, do you have preferences for how the business will continue under new ownership?

Defining Your Exit Planning Circumstances and Urgency

Owner exits are usually prompted by one or several circumstances, with no one reason applying to all or even most exits. Consider whether any of the following are motivating your decision making:

• Do you want to retire?
• Are you bored by your business?
• Are you feeling burned out?
• Are there business challenges that require time and financial investment beyond what you can or want to provide?
• Is there a desire or need to relocate to a different geographic region?
• Is divorce, a family issue, or other personal challenges prompting you to sell?
• Are financial pressures, including the need to free up money or to make more money than the business can provide, an issue behind your exit motivation?
• Are you facing health challenges?
• Is there a new opportunity you’d like to pursue?
• Are you facing partner conflicts or other internal business issues?

After listing which circumstances are motivating your exit decision, note whether your exit timing is urgent or flexible. Realize that the most urgent exit needs often correlate with lower sale prices for three main reasons:

• Immediate exits eliminate the opportunity to strengthen business performance and attractiveness prior to a sale listing.
• Immediate exits prompted by pressing financial needs almost always force an immediate sale and payoff, precluding the opportunity to offer seller financing, which typically supports a higher sale price.
• Immediate exits shorten or eliminate the possibility of seller involvement in a post-sale transition period, which likely leads to concerns that can lower a buyer’s offer.

Defining Your Financial Priorities

Beyond personal circumstances, exit decisions involve financial priorities, which are affected by timing realities:

• Do you want to achieve the highest-possible sale price, or is timing more important than pricing? Consider that unless a business is in a strong financial and operational condition, an immediate sale likely results in a discounted price.
• Do you want or need a full payout or a significant payment at sale closing? Consider that most cash payoffs require buyers to seek third-party loans, which are often hard to come by and slow to process. They also often result in lower selling prices.

Defining Your Post-Sale Considerations

Understanding what you want to do after a sale also influences your sale-approach decision:

• Do you want to exit and immediately walk away from the business? Consider that unless the business is in strong condition and easy to transition to a new owner, the seller’s desire for a rapid departure raises doubts and leads to a lower selling price, especially if the seller also seeks an all-cash payoff.
• Are you willing to remain involved during a 3- to 12-month transition period? Consider that a seller’s willingness to remain with the business for a post-sale period conveys to buyers higher confidence in the future of the business, which in turn supports a higher selling price.
• After the sale, do you want to remain involved, full- or part-time, as a partner, consultant, or employee? Consider that in many cases, the seller’s desire for ongoing involvement limits the buyer pool and triggers price negotiations.

As part of post-sale considerations, also list what you want for your business, clients, and staff:

• Is it important to you that your business remain at its current location with only limited disruption to clients and staff? Consider that a desire to keep the business in its current location and configuration reduces the option of a merger or consolidation with another business, narrows the buyer pool, and usually affects pricing.

Resolving Conflicts Between Your Exit Objectives and Your Desired Outcome

Various exit objectives conflict with one another. Before finalizing the list of what you want out of your exit, use the following list to reconsider and prioritize your motivations.

Desire for the highest possible price conflicts with desire for all-cash payoff, immediate departure, post-sale involvement, or post-sale priorities.

Why? First, sales requiring all-cash payoffs typically close at considerably lower prices than those involving seller financing. Second, sellers requiring an immediate departure signal to the buyer a high sale desire, which invites price negotiations. Finally, stipulating post-sale priorities for the owner or the business often narrows the buyer pool and decreases the ability to sell for the highest possible price.

Desire for all-cash at closing conflicts with desire for immediate sale, a high price, or immediate departure.

Why? All-cash payoffs often require difficult-to-obtain and slow-to-process third-party loans. They also signal urgent seller motivation, which can lead to lower sale prices.

Desire for immediate sale conflicts with desire for a high price and desire for immediate departure.

Why? Almost all businesses require a period of time for pre-sale preparation to enhance business attractiveness, strength and value. And almost all businesses that appear less attractive and valuable are slower to attract buyer interest.

Desire for immediate departure conflicts with desire for a high price or all-cash payoff.

Why? Unless the business is in strong condition and very easy to transition to a new owner, rapid departure raises buyer doubts and leads to lower pricing. To a business buyer, a request for immediate departure, like a request for an all-cash payoff, is an indication of either the seller’s high desire to sell or low confidence in the future of the business, both resulting in lower purchase offers.

Desire for post-sale personal or business priorities conflicts with a desire for a high price.

Why? Stipulating future personal involvement or after-sale priorities for the business limits the buyer pool and triggers price negotiations.

Desire for a pre-sale business preparation period followed by a strong sale offering conflicts with no other sale objective.

Why? With a mid-term to long-term time frame, the seller can improve the condition, attractiveness, and value of the business while planning a sale offering that addresses seller objectives and avoids conflicting priorities.

Defining your exit motivations, timeframe, and objectives and ranking them by priority is key to selecting the optimal exit route. When choosing the right approach for you and your business, it's essential to consider how it will affect your financial goals, sale objectives, and after-sale objectives.

To exit your business effectively, it's important to understand the process and the market. Visit our library of articles on How To Sell a Business for more information and create a free BizQuest account to set up alerts and keep tabs on similar businesses selling in your area.