How to Plan a Successful Business Exit
Published: 4/18/2016 5:43:10 PM
A successful exit will have five ingredients, and advisory professionals can help educate clients about each of these:
1. A written exit plan based on the owner’s objectives. Having a written exit plan is critical to allowing business owners to remain in control of the process. We talk to business owners every day who say, "I want to die at my desk." That’s OK, but what happens to your business and your family when that day comes? We see others who say they only want to work from 9 to noon, but they’re not willing to give over major control to this child or this key employee yet.
An exit plan that is based on the owner’s objectives can address these various scenarios. Any exit route is possible with the right planning.
2. An experienced team of advisors. Experienced advisors who can design and implement the plan are also important. Complete Financial Services recommends having one professional to “quarterback” the advisory team, pulling in others as needed for certain aspects of the transition. Accountants, brokers, other valuation professionals, lawyers, financial advisors and insurance advisors are among the professionals that provide exit-related services, but business owners may not take full advantage of these resources when it comes to succession or exit planning. BEI’s survey of business owners found that while 32 percent of business owners had discussed exiting their business with their spouse or other family members, only 12 percent had spoken with a CPA about it and only 13 percent had spoken with an attorney. These numbers show that accountants and valuation professionals have a unique opportunity to help clients develop an exit planning strategy with business owners.
3. Cash flow and a quantified business value. Financial advisors understand that the value of a business and its cash flow are, in many ways, tied together. A valuation professional can walk the owner through how the business’s value is determined and can identify and help the owner begin working on improvements (such as lower inventory days and accounts receivable) to boost the value. Many deals fall through because the buyer and seller can’t agree on how much the company is worth. Determining the value and which financials influence it is a step toward avoiding that situation; the great news, however, is that at CFS, we have certified business valuation professionals who can prove to the buyer how much your business is worth!
4. A strong management team. A strong management team in place can either make the business more attractive to a buyer or can make the transition to employee- or family owners go more smoothly. Business owners may need professional help to develop a strong management team.
5. Time. Finally, business owners need time for a successful exit. Anywhere less than 18 months, you’re going to be in a bit of a bind. Optimally, business owners will be planning three to five years in advance of an exit.
That way if they need to build a management team or grow through acquisitions or organic growth, then they’ll have some time to do that. A large number of business owners who haven’t begun exit planning think their business is worth four to five times what it’s really worth. A good advisory team can get the owner where they need to be, but we’ve got to have the time to do that.
Combining these five ingredients will make the process of exiting a business much smoother. Exit planning is scary. As business owners talk about exiting this thing they created and that supports their family, transitioning from the business is difficult to think about.
That’s where professionals with the right resources and tools can help not only establish the process but also drive the plan forward and reassure the business client along the way.
Contact us today and see how we can help you plan a successful business exit!