Why Every Online Business Owner Needs A Post-Exit Plan
Having talked before about why it’s always a good strategy for a business owner to have an exit plan from day one: a more stable business, less exposure to risk, and a higher valuation upon exit. Basically: it pays to plan.
But what about the elements of an exit plan that come to play after you sell your business? Despite the image in popular culture of the entrepreneur-made-good kicking back in some faraway tropical locale, life is often much more complicated than that. In fact, the kind of wealth that could afford an entrepreneur that lifestyle arguably requires even more work and diligence in order to be protected and maintained. It’s been said time and time again, but in the words of Notorious B.I.G., “Mo, money, mo problems”…or at least more tax lawyers, investment advisors, bankers, and the like.
Make The Most Of It:
Not only do many online business owners never fully consider their exit plan – until they absolutely need to – they also never consider what life might look like post-exit. During the sale – and ultimately the closing – a process it can be all too easy to get caught up in that final number on the term sheet, a financial manifestation of all that hard work you’ve put into your company.
But no matter what your exit looks like, a payday big or small requires careful planning and anticipation in order to be put to the most benefit. A post-exit owner needs to consider many things, among them:
- Taxes: Though this subject could warrant an entire library of articles on its own, the basic message is that any business owner that keeps an exit strategy in mind is one that probably keeps their books in mind. Thinking ahead about selling your business means that you can not only structure it in a way that allows for ease of sale down the line but also create an infrastructure that reduces your immediate exposure to a substantial tax bill once your business is turned into cash. These mechanisms can take multiple forms too numerous to mention here, but the point is that when it comes to taxes, an ounce of prevention is worth a pound of cure.
- Living Expenses: Many sellers fail to realize what percentage of their day-to-day living expenses are subsidized by their business. Things like vehicles, home office space, life/medical insurance, and travel are all costs that might have been rolled into the business but now need to be paid out of pocket. Depending on the size and scale of the company, this can amount to a significant cost or change in your lifestyle. You need to sit down beforehand and determine how much income you need to be earning, and if the profits of the sale of your business can achieve this level of income.
Make It Last:
A business owner that exits with a strong post-exit plan has the ability to take their payout – whatever it might be – and not only preserve that equity through employing tax-reducing tactics, but also allowing it to generate income almost immediately and managing that wealth generation into the future. According to the National Endowment for Financial Education, roughly 70% of people that win the lottery or come into a windfall end up broke within 5 years.
After all, cash in the bank is always good, but dollars generating proper returns are always better. Even if you decide to get in another business, a well-thought plan can allow you to understand just how much you have to invest, and what needs to be preserved and protected for the future. It can be hard to wrap your head around, but after selling a business you’re not actually any wealthier than you were before. It’s just that the equity that you once held in the form of a company has now been made liquid. For many business owners, this is a helpful way to think about it, since if you wouldn’t buy a Ferrari as a company car a year ago, maybe a post-exit Ferrari isn’t the most prudent purchase.
Also, as you create, build and sell businesses, you’re using up a precious commodity: time. As you go from project to project you use up that time and have less and less of it, and as such your post-exit plans need to be constantly evolving as you need to transfer more and more of the wealth generated into achieving long-term personal financial security.
This is a big part of living a post-exit life, and for many still in the throes of entrepreneurship, it can be strange to think about: when a person is so deeply tied to a business, what are they when it’s no longer a part of their lives?
Just think about it: you wake up tomorrow having sold your business. What does your day look like and what do you do? There’s no longer an office to go to, no employees or clients to meet with, sales or vendor emails to respond to. Heck, you can’t even log into your analytics to take stock of the state of the business. So what does that day look like? And the day after, and after that, and so on.
If you don’t have an answer – and most don’t – that’s fine. If you think you’re immune from this sense of aimlessness, that a huge financial payout will fill in the gap, you’re wrong. After selling his company, creators of the wildly popular game Minecraft for $2.5 BILLION, founder Markus Persson sent the following tweets:
- “Hanging out in Ibiza with a bunch of friends and partying with famous people, able to do whatever I want, and I’ve never felt more isolated”
- “The problem with getting everything is that you run out of reasons to keep trying”
Though it may seem depressing, there’s an important lesson here: this is a man that outbid Jay-Z and Beyonce for a $70M house in the Hollywood Hills, and even he succumbed to a post-exit depression and sense of aimlessness.
For many entrepreneurs, even those with a payout that leaves them not needing to work, they still need to find something other than golf or fishing to fill their days, things like:
- Mentorship/Educational Programs: particularly when it comes to online businesses, most education systems are behind the eight-ball when it comes to teaching their students about this still-evolving frontier of the business world. For many entrepreneurs, offering their knowledge to the next generation of business creators can be just as rewarding as building a business.
- Advisory Roles: having built a business to scale and then sold, you’ve accumulated a lot of experience, and that experience has value well after you’ve cashed the check. Making it known that you’re willing to bring that experience and knowledge to help other companies is a great way to stay in the game while minimizing your exposure to the risks of full-on ownership.
Ultimately, just like an exit strategy, an entrepreneurs post-exit strategy is never a ‘one size fits all’ prospect. Still, the most valuable commodity any person has is time, and to exit a business and sit idle without a plan is to allow that value to slip away. Even if you’re exit means that you can live that dream of whiling your days away on a beach, it’s important to understand that the kind of money that affords a lifestyle like that takes a lot of planning. You probably spent a lot of time, effort, and money building your business up to the point where you could finally employ your exit strategy. Not having a plan after you exit is in many ways doing a disservice not only to the value you built and now have in-hand, but also to yourself.