What Nobody Tells You Before You Sell Your Business

Most business owners spend years, sometimes decades, building something remarkable. But when it comes time to exit, the majority aren't prepared for what happens next. According to research from the Exit Planning Institute, 75% of business owners regret selling their business within the first year. 

In this episode of Financial Commute, Wealth Advisor Joe Seetoo sits down with host Chris to walk through the exit planning framework Morton Wealth uses with business-owner clients, from protecting against the Five D's to building transferable enterprise value and knowing who you'll be on the Monday after closing day.

Key Takeaways from This Episode

Start planning earlier than you think you need to

The best time to start exit planning was five years ago. The second-best time is now. Unsolicited offers from private equity arrive without warning and if you haven't done the planning, you're reactive, not strategic.

The three-legged stool: business, finances, and identity

Most owners focus on the business leg and neglect the other two. A successful exit requires planning across all three simultaneously: the health of the business, the clarity of your personal financial picture, and an honest reckoning with who you are outside the company.

Transferable enterprise value is the goal

A business that can run without you isn't just good operations. It's a more valuable, more sellable asset. Building it takes time, which is another reason to start planning early.

The highest price isn't always the best outcome

The clients who don't regret their exits are rarely the ones who got the highest number. They're the ones who knew what the number meant for their life and who they were going to be afterward.

Transcript

Chris: Joe. I'm looking forward to the conversation today, because we're here to talk about business owners and their exit strategy. There was a stat that really stood out to me, where 75% of business owners regret selling their business within the first year. And it's not because the deal was bad, but it's often because they weren't ready for what came after.

Joe: This is an area I'm passionate about. I've been deeply involved with the Exit Planning Institute. As I started looking at the data, it became shocking to me how many owners can’t successfully exit their business, or even if they do, they have some form of regret. There's a big gap in that area, and I think there's a lot financial advisors can do to help improve outcomes.

Chris: So why do you think so many business owners fail to plan their exit?

Joe: A lot of it comes down to not having a framework. So many owners give a lot of thought to the beginning — starting the business — but as they get into running it day-to-day, they get pulled into the weeds. They don't have a way to focus on building value in their business and in their lives. They focus on income instead. The framework we use centers on three legs of the stool: the business, their financial affairs, and who they are as an individual. Most owners focus only on the business leg.

Chris: Most business owners know they want to sell, but they're stuck working in the business and not on the business.

Joe: Exactly. And it may not just be a sale — it could be a family succession. But the challenge there is that owners assume their kids want to come into the business. What we saw in the State of Readiness survey with the LA Business Journal is that family succession was actually the number one exit option most owners were thinking about. And yet many of the kids don't actually want to go into the business.

Joe: One thing I always come back to: is this a lifestyle business — one that generates good income for the owner but is owner-dependent — or are they building something with what we call transferable enterprise value? A business that's less dependent on the owner, more resilient, is far more attractive to a third-party buyer.

Chris: And these businesses can represent north of 80% of an owner's net worth.

Joe: Typically it's the biggest asset on their balance sheet.

Chris: You've talked about the five Ds — Death, Disability, Divorce, Disagreement, Distress. What happens if a business owner dies unexpectedly?

Joe: First, the statistic: 50% of owners go through one of these five D's. That needs to be normalized and understood. This is where a wealth planner can do a lot of work — it's really good exit planning and good business principles. If they've got a great estate plan in place, a funded buy-sell agreement, and they've decentralized leadership so it's not all running through the owner — then if there is a death, the likelihood that the owner's family can harvest the wealth inside the business is much greater. The partners may be able to buy out that interest. In our own business, we have very clear language in our partnership documents that if something happens to me, my wife Jen is not stepping in as a financial advisor. Coordinating your estate plan with your business legal documents provides that resiliency.

Chris: Most people are willing to pay $1,000 for AppleCare on a computer, but don't want to buy disability insurance. God forbid they get in a car accident and can't work for eight months — that's terrifying. Have you seen a divorce force a business sale?

Joe: I'm actually working through one right now. The good news is there's enough structure in place that it won't be forced to a third-party sale at this stage. But gray divorce is on the rise. The baby boomers were the most entrepreneurial generation, and something external to the business — like a divorce — can put real strain on it. That goes back to why you need to be thoughtful about the coordination between your business legal documents and your estate plan.

Joe: And with disagreement between partners — if you don't have clear buy-sell agreements in place, you get into lawsuits. Disputes over valuation, disputes over ownership. We've seen it take a business down entirely. And when that happens, you've affected not just the business, but the clients, the employees, and ultimately the families of everyone who depended on it. One D can cascade into others.

Chris: Let's talk about the 25% — the ones who don't regret selling. Can you walk me through a real case study?

Joe: Let's call him Mike. We'd known each other for about 15 years. He'd been doing a lot of the right things — was in a peer group that helped him decentralize the business, built good teams, good culture. Revenue wasn't dependent on him. He had a leadership team and a good estate plan.

Joe: When he started contemplating his exit, we built a personal financial roadmap, got a formal valuation, and assembled a team — a good transaction attorney, a transaction CPA (not just any CPA — someone with actual deal experience), and an M&A advisor who ran an auction process and got him the financial outcome he wanted.

Joe: But here's the thing: he struggled for a period of time after. He was still young, very entrepreneurial. He was wrestling with his identity. I connected him with a life transition coach, and through that work, he was able to really think through what he wanted to do next. He's now deeply committed to a nonprofit he's passionate about — using his people skills and problem-solving in a completely new way. He's even said that in 5–10 years, maybe he'll start another business. But that honest reckoning with himself is what allowed him to become one of that 25%.

Chris: The biggest takeaway is that the most satisfied clients aren't the ones who got the highest price.

Joe: 100%. It's the ones who know who they're going to be afterward and what they're going to do. We always say money is a tool for helping us live our best life. They come to a place of acceptance, of looking forward not back, and harmonizing financial success with personal identity.

Chris: So practically — I've got a business and I want to sell. What's my first step?

Joe: Start getting educated on exit planning principles. Understand the different exit options — third-party sale, family transfer, management buyout. Get an independent valuation of your business so you have an objective number to work from. Then build a financial roadmap that quantifies what I call the wealth gap: what this business is worth net of taxes, and what you actually need to fund the life you want afterward. Ideally you're doing this 3–5 years out. Then start assembling your advisory team — M&A advisor, transaction CPA, transaction attorney, and a certified exit planning advisor who can hold everyone accountable and coordinate the communication.

Chris: It's a bit like selling your home. You have a number in your head, but you bring in a real estate agent with comps, someone to assess what needs fixing. A business valuation works the same way — it gives you an objective view of what someone might actually pay, and whether you've got a lifestyle business or an enterprise.

Joe: Exactly. And the owner who tries to do all of this themselves has bought themselves three jobs — running the business, coordinating the advisors, and managing their own personal planning. That's too much. Keep your eye on running the business. Let the team handle the rest.

Chris: What's the difference between a business valuation and what someone will actually pay?

Joe: A formal valuation gives you a number — the 'what.' But it doesn't talk about deal structure or what the market will actually pay today. Transaction value, from an investment banker or business broker, reflects current market conditions and includes deal structure — how much cash at close, what the earn-out looks like, whether there's rollover equity. That structure matters enormously to your financial plan. And here's the thing: the range a buyer quotes you typically starts high. As they find risks and problems in due diligence, they're cutting it. They're not saying, 'We found fewer problems than expected, we'll pay you more.'

Chris: It starts as a big carrot and gets cut in half.

Joe: Exactly. And we're also seeing a lot of unsolicited offers right now. Private equity comes out of the blue, the offer looks really good, and if you haven't done any planning, you're reactive. You go through the process, it gets chipped away, and at some point you've invested so much time that you just close the deal anyway. Start planning now so you're never in that position.

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