Hey, you.

Hey, business owner.

Yeah.

You know who you are.

You've been working at your business.

You've been pouring your blood, sweat and tears into it for decades.

You've taken risks.

You've had years where you've made a lot of money.

You've had some years where you literally made negative money.

Now you're in your 50s, your 60s, and you're thinking about selling your business.

You're thinking about, am I ready to exit my business?

So today we are talking about three questions that need to be answered by business owners who are even considering exiting their business.

And these would be about three different areas of their lives.

And if we're not on point for all three of those questions, and if we don't know the answers properly, it can be an expensive mistake, both for quantitative and qualitative reasons.

Today we're talking about readiness360.

These are three questions that every owner has to answer honestly before they ever sit across from a buyer or even really think about finding buyers.

Are you personally ready to let go?

Is your business ready to be sold?

And are you financially ready?

Welcome to the weekly Wealth Podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

So come on and let's enjoy this journey together.

Welcome to this week's episode.

I'm David Chudick.

This is the weekly wealth podcast and we talk about the mindsets, the tactics, and the strategies that can help you to build and maintain wealth.

Now, I ask every week, if you're not driving, take a moment to follow us on Instagram, follow us on YouTube, follow us on Facebook, and if you've gotten any value from the show, it would be amazing if you would forward an episode to a friend, a family, a colleague, a co worker, or a business owner.

All right, so now that that's out of the way, if you're a business owner, at some point you've thought about selling.

I know that you have, because I have also.

Maybe you've thought five years from now, maybe it's just your dream that you're going to walk away with that proverbial hundred million dollars.

Maybe your health is declining, maybe you have another business or another interest that you.

You might like to pursue.

But most business owners have exiting their business in their plans in some way, shape or form.

Maybe you thought about it when you woke up this morning.

You're thinking I just can't do this anymore.

But here's the problem.

Most owners judge their readiness by how they feel.

Like I'm tired or I'm done, or the timing feels right, or like I feel like I still have more to give and I shouldn't sell.

I feel.

So feelings are not a plan.

Feelings are just feelings.

Right?

So wanting to sell, or maybe even not wanting to sell is not the same as being ready to sell or being at a point where maybe you should sell.

So today we're going to talk about the readiness gap.

And it's built off of three different assessments that we use.

It's based off the prescore, the personal readiness to exit.

It's based off the freedom score, and it's based on off of the sellability score, all of which are available for you to take.

And it breaks readiness into exactly three lenses that I've mentioned.

And I want to walk you through all three, because most owners, and honestly, most advisors, only ever check one of them.

So there are exactly two numbers that you need to know before you can know whether a sale would work.

Number one is your minimum.

That's the least amount of money you'd need to walk away with and still feel financially secure.

And number two is a recent and credible valuation, what the business could actually command in the market today.

Now, this is not what you think it's worth, and this is not what your friends think it's worth.

This is not what it was worth three years ago, and this is not what you think it might be worth in three years.

This would be a credible valuation now.

So that's it really.

That's two numbers.

And it doesn't really require a PhD.

And yet only 27% of owners have both numbers.

One third have one, but not the other.

Nearly 40% have neither.

You add that up and you get a headline.

73% Of owners are not financially ready to exit by the most basic definition of the word.

So let's be clear here of what that doesn't mean.

It does not mean that 73% of owners are incapable of selling.

It means that 73% of owners have no way of knowing whether a sale would even hit their number.

They're driving towards a destination without knowing how much gas is in the tank.

So here's a part that might surprise you, and it surprised me.

You'd expect this cluster.

Maybe burned out owners, skip the homework, or maybe owners who've been at it forever have it more dialed in, right?

Nope, that's not the way it works.

Owners who are burnt out, ready to retire, long tenured, or eager to cash out are all missing both numbers at nearly the same rate, roughly 30 to 41%, depending on the group.

Even the owners who say cashing out is their main motivation, the ones you think are the most financially dialed in, nearly a third of them still don't have that number either.

Being motivated is not the same as having the math done.

So if you're listening to this and thinking, I'm not the type of owner this applies to, that's exactly the thought the data says to ignore.

There's no reliable tell.

Confidence isn't proxy preparation.

Fatigue isn't tenure isn't.

The only way to know is to ask yourself right now, do I actually have both numbers?

Now, here's the part I think is the most important finding in the whole report, and it's the one most people will skim past.

Say you're in the lucky 27%, right?

You've got your minimum number.

You've got a real valuation.

You did your homework.

You must be ready, right?

Well, among owners who have both numbers and compared them directly, 64% found the business was worth at least what they needed.

But 21% discovered it was worth less than what they needed, and another 15% weren't even sure.

So if we say that again, more than a third of the owners who did everything right, they got their minimum number, they got their valuation, they still walked away, either with a shortfall or a giant question mark.

So having both numbers doesn't mean you're ready to sell.

It means you're finally reached the point where you can find out whether you're ready to sell.

That's a completely different thing.

And the valuation doesn't just validate the plan.

In a lot of cases, it changes the plan.

And here's why timing matters so much.

A shortfall you discover five years before a sale is a planning problem.

And that can most likely be fixable growing the business a little more.

Adjust the number, build a bridge.

A shortfall you discover six months before a sale when you've already told your team, already started imagining the boat or the golf schedule or the tennis schedule or the pickleball or whatever comes next.

That's not a planning problem anymore.

That's a failed transaction or a delayed retirement or a disappointed owner sitting across the table from a buyer trying to renegotiate.

That's the whole case for starting early.

Not because you have to sell soon, but because the earlier you find the gap, the more options you have to close it if you're a business owner and if you're not 100% sure, you have both of those numbers, your minimum and your recent valuation.

That's exactly what the sellability score is built to surface.

It's free, it takes about 15 minutes, and it'll show you where you stand on things that drive your business worth.

So go to www.weeklywealthpodcast.com saleabilityscore that's www.weeklywealthpodcast.com be in the Show Notes okay, so let's say the numbers work.

Your minimum is covered.

Your valuation is at least in the ballpark of where it needs to be.

You're financially fine.

You're ready, right?

Maybe.

But the report asks one more question.

I think it's the sneakiest one in the whole thing.

What are you most excited about after you exit?

And a full 25% of owners could not name a single thing they were excited about doing after the sale.

Not that they had a boring answer.

Not that they said travel.

And I don't believe them.

A quarter of owners, when asked what they're moving towards, came up with nothing.

Compare that to the owners who could answer.

46% Said spending time with family.

40% Said travel.

28% Said getting healthier.

28% Said said a hobby.

Those are people with a picture in their head of Tuesday morning, six months after the closing.

The 25% with nothing.

They don't have that picture yet.

And quite frankly, they may lose a sense of purpose in their life and they may not have happiness.

So this fix is not really like a spreadsheet fix.

It's not a numbers fix.

It's a conversation about life after the company.

I've said this on the show before and I'll say it again.

For a lot of owners, the business just an asset.

It's an identity.

Yes, I know my business is part of my identity as well.

And whether that's good or bad, it simply is.

A lot of days it is a big part of the reason why I get up.

It's the reason people call me.

It's the reason people know who I am and when it's gone and there's nothing built to replace it.

The money in the bank doesn't fix that Tuesday morning problem.

And then the second layer to this is like why the owners are even considering an exit in the first place.

The report splits reasons into two buckets.

Planned reasons, things like wanting to cash out.

It's time to retire.

Diversifying wealth, which is a big one, and reactive Reasons like stress, burnout, it takes too much time.

Health concerns.

So too much stress.

49% Burnout, 48% takes too much time.

43%.

Those numbers have barely moved since before the pandemic.

No spike, no.

No decline.

It's not a moment.

It's structural.

Exhausted owners are not necessarily prepared.

Owners, they're not ready.

They're just done.

And the distinction matters more than it sounds like it does because of what happens next in the deal.

Look at this one.

76% Of owners are willing to stay on as a consultant after the sale.

Only 31% are open to an earnout.

Just 9% want to leave immediately.

A tired owner will say yes to almost anything in the room to get a deal done.

Then, six weeks into a required transition period, they resent every minute of it.

Advisors and buyers who don't catch that risk.

Building a deal structure that looks perfectly rational on paper and completely misreads what the owner can actually tolerate on the other side of the signature.

If you're pushing yourself towards the exit door because you're exhausted, that's real.

I'm not telling you exhaustion isn't valid.

I'm telling you exhaustion is not the same thing as readiness.

And conflating the two is how owners end up in deal structures they can't stand six months later.

So let's talk about the third lens.

So far we've covered personally and financially, the third lens is the one that actually determines whether your valuation number is any good in the first place.

Is the business itself ready to be sold?

That's where the saleability score comes in.

Because it's built around eight specific drivers that determine whether a business commends a premium multiple or gets picked apart in diligence.

Things like how dependent the company is on you personally.

Is revenue recurring or one off.

How diversified is the customer base?

Is there a management team that can run this without the owner in the building?

Here's the connection.

Back to that 21% we talked about earlier.

The owners who got a valuation and found out it was less than they needed.

In almost every one of those cases, it's not that the market is being unfair.

It's that the business has one or two of these drivers working against it.

Too much owner dependency.

A customer lists with three accounts that are 60% of revenue.

No documented system, so a buyer can't picture running it without you standing there.

A business can generate great cash flow and still be nearly unsellable.

The two are not the same thing.

This is the piece that's fixable furthest in advance.

And it's the one that owners are least likely to check on their own.

Because from the inside, a business that feels like it's working fine is a business that's valuable.

This is the piece that's fixable furthest in advance, and it's also the one owners are least likely to check on their own.

Because from the inside, the a business that's working feels like a business that's valuable.

Those aren't the same question, and a buyer will absolutely tell the difference.

The only choice you have is to find out from a buyer or from a saleability score assessment two or three years before you need the answer.

All right, so let's put this whole thing together, right?

Because this is what I want you to walk away with now, when you're thinking about potentially exiting your business, and preferably we're thinking several years out, right?

Right.

You first have to think, am I or will be financially ready to exit?

So financially ready means you have your minimum and you have a somewhat accurate valuation, and you've compared them because having both isn't the finish line.

It's the starting point.

Right?

So.

So we have a tool called the Freedom Score, and it can help you determine what your minimum needs to be.

And then the sellability score will give you a range of values of what your business might sell for.

Now, again, the sellability score is not a certified valuation, but it's a great starting point.

Now, personally, are you ready?

You know, so we have the prescore, the personal readiness to exit score.

And personally ready means you can name what you're moving towards, not just what you're moving away from.

And you're honest about whether you're being pulled away by a plan or pushed away by exhaustion.

All right, so what would you do when you're no longer working in the business?

Would you volunteer?

Would you.

Do you have interest?

How is your health?

Things like that.

All right, so again, we need to be financially ready.

So is our money ready for us to sell?

Are we ready to sell?

And then is the bag business ready to sell itself?

Right, so we're not just talking about the P and L. We're asking, can your business survive diligence in the selling process and stand on its own without you in every room?

And if you miss any one of those three, and I'm ready to sell is a feeling and not a fact.

So the transaction is a visible event.

That's when you're in the attorney's office and you're signing papers and money is changing hands.

But readiness is the work that happens long before it.

But the good news is, and this is genuinely really good news, every one of these gaps is fixable.

The data backs that up too.

Readiness hasn't meaningfully improved industry wide over seven years.

Which tells you the problem isn't awareness, is that nobody's actually sitting down and doing the diagnosis.

That part's on us, it's on you, it's on the advisors.

And honestly, it's a pretty short conversation to start.

So why are we talking about, like business readiness?

Why are we talking about, you know, why is a financial advisor talking about are you personally ready to sell your business?

How would you feel?

What would you do?

What would give you meaning?

You know, your typical financial advisor, they're trying to convince you that they have the best way of managing money, that they can get you the best return.

They have investment processes, blah, blah, blah, blah, blah, blah, blah.

And yes, that is all important.

However, as I always say, I believe that how we handle our money should positively impact our lives and the lives of those around us.

And if you're a business owner, your business is a tremendously large part of your life.

So how you manage that asset is a large portion of your life.

And it should be part of the financial planning process with you and your advisor.

When you should exit and if you should exit should be a major part of your financial planning decisions.

Okay, so we're not just talking about fluff stuff.

This is really, really important.

If you've built a business and it could be worth multiple 6, 7, 8, 9, 10 figures, we need to treat that as the asset that it is.

And we also need to deal with the quantitative and qualitative aspects of exiting your business.

I want my clients to feel really good about their exit.

If they choose to exit, I want them to exit at the right time, for the right price and for the right reasons.

And if I'm not helping with that, quite frankly, I'm not a very good financial advisor.

So that is a little bit of food for thought there.

So if any of this jumps out at you and you would like to have a 10 or a 15 minute conversation, let's do a vision call.

Go to www.weeklywealthpodcast.com vision.

That's www.weeklywealthpodcast.com Vision.

We can take 10 minutes, 15 minutes.

We can meet in person if you're local, or we can meet via Zoom and we can talk through a couple of these concepts.

No pressure, no fluff, just a conversation.

All right everybody.

Until next episode.

I wish everybody a blessed week.

Thanks everybody.

The information presented on this podcast is for general educational purposes only and does not constitute financial investment, legal or tax advice.

Parallel Financial is registered with the U.S. securities and Exchange Commission SEC as a registered investment advisor.

Registration does not imply a certain level of skill or training, nor does it constitute an endorsement by the sec.

All investing involves involves risk, including the potential loss of principal.

Please consult a qualified financial professional before making any financial decisions.

Here is your bonus content for this week's episode.

Now, there's something in investing called concentration risk and that talks about having too much of your net worth or too much of your investment in any one position or one type of position or maybe a certain sector or anything like that.

So oftentimes, maybe you'll have someone who works for Apple or IBM or Microsoft and they're getting stock options or they're getting granted stocks frequently.

And little by little their portfolio starts becoming too heavily weighted in that one stock.

So maybe they have a million dollars and, I don't know, $50,000 of their of their portfolios in Microsoft, that's 5%.

That's probably not 2 too overly weighted.

But let's say between automatic purchases and an increase in that one stock, we look at it and now they have 15, 20, 30% of their money in that one stock.

Well, that's concentration risk and that's kind of the proverbial all the eggs in one basket.

Now let's look at the same thing for business owners.

Typically a large portion of their net worth is tied up in the business.

So at a point, maybe if you've reached the freedom point or if you're close to it, it might make sense to take some of those chips off the table and to diversify by selling all or part of your business and not having so much of your net worth tied up in that one asset.

Just a thought.

Let me know what you think.

Email me davidarallelfinancial.com.