The Corridor of Wealth: Four Decisions for Better Exit Planning
Think back to why you started your business. Maybe you worked for a large corporation and your ideas never made it past the threshold to become a product. Maybe you spotted a better way to serve customers and quit your job to try it. Maybe you started with a mission in mind, or, as happens more often than people admit, out of desperation.
Whatever the reason, after more than twenty years of working with owners, I have a few assumptions about you:
You are passionate about your product, your customers or your people.
You've seen the ups and downs of running a business, and you're clear-eyed about them.
Most of your wealth is tied up in your business.
At this point in life, your business isn't your entire life. It's a means to make your life fulfilling.
If that sounds like you, I'd like to share a way to view your business journey.
Think of it as a corridor
I first drew this as a diagram for a workshop with a group of small business owners. It is a corridor that runs from the reasons you started to the life you want afterwards. What matters about a corridor is that it has walls. You can walk it on purpose, or you can wander off.
Many owners wander. They take what I call a random walk: one decision at a time, each sensible on its own, none of them aligned with the life they actually want. I understand why. When you are running a business, the next decision is always the urgent one.
Yet, as an ex-M&A adviser, I have also had a front-row seat to many failed sales transactions and disappointments. In the transactions I saw fail, the same three problems kept recurring. The seller’s financials and data were too thin for due diligence. The process pulled leadership away from running the business. And the seller could not justify the revenue projections, because several big deals had been accidental, such as a lead from a friend of the owner, with no evidence they could be repeated. The cost was real. In one case, the deal collapsed and revenue took a big hit. In another, the buyer lowered their final bid. Different sellers, same root cause: the preparation had not been done years before the buyer arrived.
That is why I suggest you start viewing your journey inside a corridor.
Why a corridor works for exit planning
The corridor sharpens your focus. Picture it with two walls. One is your number or your freedom point: the life you want the business to fund. The other is your value curve. A value curve charts your business’s worth over time, from today to your freedom point and beyond. It is the path your business must follow to reach your freedom. Stay between those two walls, and you are in the corridor. Along it are four decisions: know your number, grow your business’s value, exit on your terms, and choose what comes next.
They are easy to describe and surprisingly easy to skip. I will take them one at a time.
1. Know your number, and what it is for
Many business owners feel uncomfortable here. I can hear you saying, “Not everything is about money.” No, it is not. But numbers help keep it that way.
I always start my conversations with a business owner with the same question: What do you want this business to give you? Without an answer, “enough” has no meaning, and every decision about growth, reinvestment and selling becomes a guess. Start with the number before you start worrying about the date.
That number will determine how much your business should contribute to your life. Today, you generate revenue and pay yourself a salary. You are bound by the business. At some point, the business will be worth enough that working becomes an option for you, not a verdict.
This is what I call your freedom point. This number also enables you to chart a value curve, from where you are to where the business should go. Your number is the first wall of the corridor. The value curve is the second. Stay between them.
2. Grow the value of your business
Now that we have a view of the value curve, we need to manage your business in a way that continually grows its value beyond your freedom point. Yes, beyond! Your freedom point is not a ceiling. It is the point at which choice begins. Your business should be able to grow beyond it.
This gives you a disciplined approach to managing your business. Pressures will come, but you can make decisions that stay true to your value curve. Revenue pressures are part and parcel of business. Some revenue can destroy the value of a business. Revenue growth is not the same as value creation. A business can grow every year and still be worth little to anyone but its owner.
So what is value? The simplest answer is that it is in the eye of the beholder. Value is what a buyer is willing to pay. If you read the popular books, you will find a different set of drivers in each. My view is that a buyer wants to be sure the business will continue to grow under their ownership, at a level of risk they can manage. In my experience, that comes down to the numbers, the customers, and the people and processes behind them.
Start with the numbers. Buyers look for financial performance they can trust: management accounts that are in order, margins that hold, forecasts that turn out right. They look for a believable path to grow under new ownership. And they look for recurring revenue, because customers who come back without being chased make revenue predictable.
Then the customers. If one customer, supplier or employee is a large part of your business, a buyer sees a risk, however good the relationship is. They want customers who are happy enough to stay and to refer others. And they want something hard to copy, whether that is a brand, a product or a position that competitors cannot easily match.
Then the people and the process. If the business could not run for a month without a key person, often the owner, a buyer is buying that person, not a business. They want systems that work the same way whoever does the work, and a leadership team that makes decisions without waiting for you.
Together, these answer the question every buyer is asking: will this business keep growing under my ownership, at a risk I can manage? None of it happens by accident. Each is a decision you make, or avoid making, and each is a place where revenue and value part company. Some revenue lowers the value of a business: work that is cheap, tied to one customer or dependent on you personally. That is why I ask owners not only how much they sold, but what is inside that revenue.
Check every decision against the curve. That is how you stay between the walls.
3. Exit on your terms
Many business owners I speak to about exit planning deflect my question. “I will do it later.” Or, “My business is worth a lot, and I can get a broker to prepare it for sale.” Or, “I am looking for an entrepreneur I can trust my business to.” Or, “I am leaving the business to my children.”
There is nothing wrong with any of those responses, in principle. However, this is where you can wander off dangerously. When selling your business, market timing and buyer availability are critical. Markets go up and down. Industries shift in and out of favour. Technological changes can significantly alter the risks a buyer is willing to take on. A good business should always be ready for your exit. Yes, your exit!
Are your books in order? Do you have management accounts, plans and performance reviews, an organisation chart, clear roles, responsibilities and decision-making rights, legal contracts and a risk register?
If the right buyer called tomorrow, would you be ready to say yes, with confidence that the sales process would succeed?
What if you decided to step away? Would your business grow successfully without you?
What would the impact be on your number? Would you be better off or face a significant loss?
This decision helps ensure the corridor ends somewhere you want to be: with a business that gives you the freedom to step away from it.
4. Choose what comes next
In an angry exchange at one of my workshops, a business owner stood up and declared that he was not going to retire. “Retirement is death,” he said. I knew exactly what he meant. I do not like the idea of stopping work and sitting on a sandy beach, enjoying my favourite drinks with nothing to do.
That is why you need to decide what comes next for you. Over the years, I have seen clients go on to become business mentors, investors, trustees or non-executive directors, or to start another business. And yes, a few have retired to focus on their social interests.
The key is to know what matters to you outside your current business. That also helps you prepare for the mechanics of your business value curve as you step away. Will there be a lump-sum payment? Will payments be spread over multiple years? Will you sell all your interests? Will the buyer require you to remain involved?
This is where the corridor opens out.
Do not wander off
The two walls keep you in the corridor. The four decisions are what you walk through, and each depends on the one before it. Skip one and the cost shows up later: tax planned too late, a business built to grow but not to sell, an exit with no life waiting on the other side. Pay attention to all four.
If you feel restricted when I say “do not wander off”, remember that even the best-designed corridor will expand and contract. Markets move, economic conditions change, and unexpected events occur. There will be plenty of excitement. You just need a structure to help you navigate it.
Two walls. Four decisions. Your number and your value curve keep you in. Knowing your number, growing the value of your business, exiting and choosing what comes next are the decisions you walk through.
Do not walk it alone
For over 20 years, I have been a business consultant and coach, and I used to be an M&A adviser. I have worked within wealth management firms and consulted for several of them. I have worked with tax advisers and lawyers. Many of my clients expect me to do all of this, or at least a bit of each.
Yet I know enough about the complexity of each of these fields to know where my knowledge ends. So I always nudge clients towards the professionals.
Yes, it costs more. It is worth it. You need people whose main job is to advise you on their areas of expertise, and a corridor this long needs all of them.
Wealth manager. Your number, and the life it funds. They will manage your financial plan, investment plans and cash-flow planning.
Tax adviser. For your business. Get the structure right early, so you keep more of what you have built.
Fractional CFO. As the business grows, strong financial leadership becomes increasingly important. If you do not have that capability in-house, bring it in.
M&A adviser. Valuation, buyers and the deal itself. They know the market. They help you judge the right time and find the right buyer.
Corporate and private lawyer. Contracts, protection and legacy. Choose one who understands your business and its needs.
Business value adviser/coach. Holds the thread from your ambition through your exit and beyond.
Some lead at one stage and support at others. I have worked alongside many of them, and this post is a nod to all of them. The corridor works because they are good at what they do.
Bring them together
You may be the type of person who enjoys one-to-one relationships. In the corridor, you need a common focus for all the experts around you. Every handover between advisers is a place where value can leak. Each of them needs to see the same picture of your numbers, your timeline and what you want afterwards, and to stay informed as your business moves along the corridor.
Someone has to hold that picture together. You may want to do it yourself or choose someone from your business. In the past, I have done it for clients: while we focus on growing the value of the business, I keep the other advisers informed and ensure their input is reflected in our work.
Whoever does it, the key is the same. Every adviser needs the critical information that bears on their advice, so that they can provide you with input you can act on with confidence.
Two questions to take away
Are you walking a corridor, or taking a random walk? Do your business decisions connect to the life, wealth and freedom you want?
Is your team of advisers walking it with you, together? Do your advisers share the same picture and work from the same plan?
The Corridor of Wealth is a framework developed by YWH Ltd | Growth With Purpose. This article is general information, not financial, tax or legal advice. Please take advice from a qualified professional for your own circumstances.
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