Business Development Solutions
The Merger & Acquisition Resource for Growing Companies
The expression "If you do not know where you are going, you are not likely to get there." applies to business ownership. If you do not begin with an end (an Exit Plan), when you leave your Company (and everyone does – one way or another), you are less likely to have as successful an exit as if you had a plan.
What usually happens. (Because very few business owners deliberately prepare an exit plan.)
· Burnout – with a desire to sell quickly and move on.
· Financial Problems – leading to a desire to sell quickly and move on.
· Owner's health declines - a need to sell quickly.
· Owner dies – leading to a need or desire by the survivors to sell.
· Attractive alternate business or personal opportunity arrives – leading to a desire to sell.
· Partnership dispute – leading to the desire to sell or buy-out partner.
· Key customer changes, competitive pressures, critical vendor problems, or employee issues - leading to a concern about the future viability of the Company and thus a desire to sell.
· Owner coasts along without deciding to grow or preparing for an exit – leading to a downward trend in sales and profits – sometimes the desire to sell comes too late when potential buyers would not be interested in the Company except at a fire sale price. This is very common... according to Business Broker industry statistics, only about 25% to 33% of all businesses listed by business brokers ever sell!
· A buyer shows up and makes an offer, so why not sell?
A superior approach is to prepare a plan to exit your Company (Exit Plan).
Little control over when you exit. If you have not already done so, the first step is to take care of those situations where you have little control over when you exit your business. You should have:
· Life insurance – Your business is NOT a liquid business. Your estate will need liquid assets to settle business and personal obligations in full and leave your family at least as much as the expected decrease in the selling price because of the fact that you will not be there to sell the business.
· Disability Insurance – If you become seriously disabled, you will need liquid assets to provide for yourself. Do you have a contingency plan for managing your Company and meeting its obligations?
· Business Interruption Insurance – If your business is interrupted by external factors, you will need liquid assets to pay business and personal obligations.
Don't bet everything on your business. For many business owners, their business is their largest asset. By not having all your eggs in one basket, you will often have a less stressful life and the actual negations of the sale of your business will definitely be less stressful because you will not have your entire financial future riding on one transaction. Also, protect your business and personal assets by:
· Operate the business within a legal liability limiting entity.
· To the extent possible, avoid or negotiate limited personal guarantees of corporate obligations.
· Keep real estate out the business corporation.
· Establish a retirement fund (harder for creditors to get at)
· Explore creative organizational structure to spread ownership and isolate liability.
· Watch out for warranties and representations about your products or services.
Exit Plan Steps
1. Set a target date to exit your business. Without a deadline, it is hard to set the specific goals for each step of the timeline leading up to the targeted exit date.
2. How much money do you want from selling your business? Be more specific than "As much as I can get" or "As much as I need to retire". Determine the sale structure to sell your business to a third party for top dollar after taxes. Determine how to transfer your business to family member, co-owners, or employees while paying the least possible taxes and receiving the greatest financial security.
3. Establish your business's current value. Since we are closely connected to the market and do business evaluations solely for management purposes, our fees (free) are significantly lower than valuation firms oriented to valuations used for litigation support or IRS disputes.
4. Determine Value Enhancement Opportunities to increase the current value of your business to the value you established in step 2.
Is the Exit Plan realistic so far? Are all of the required changes to improve your Company's performance more than you want to do? Making the changes required will necessitate a commitment of time, energy, and money. If you are not willing to make these commitments, the expected Exit date and/or Exit Price will have to change. Can the value of the Company be increased that fast? If not, set a more realist Exit date, and/or set a lower price that you want to get from selling your business.
Implement the Exit Plan
· Set specific goals and strategies for each step of the Exit Plan leading up to a sale.
· Execute the plan.
· Get an annual valuation of your Business to see if you are on track. Modify your plan as necessary, because what is important is the fact that you have a plan, not the specifics of the plan.
If you are interested in setting up an Exit Plan, we welcome the chance to talk with you.
Business Development Solutions
Jay Whitney, President