The question isn’t whether or not to exit – it’s how to create the highest value upon exiting.
Exit Planning in advance is very important for three main reasons:
In the next ten years the “baby boomer” generation will be ready for retirement. As a result, there will be many businesses ready for sale. Since the generations behind them are much smaller, businesses for sale could far outweigh potential buyers in the near future, thus creating a “buyers’ market.” Unless your business is one of the best, you’ll risk a lower value, or perhaps not be able to sell at all.
Even during good economic times, less than half the businesses brought to market actually sell. You must be ready to sell.
If you’re waiting until the economy improves “as your strategy” you won’t be able to control the timing of your exit, the amount you’ll receive, the terms of payment, or even the type of buyer you’ll sell to. Timing the market is unpredictable at best and a very dangerous strategy. Instead of waiting until the economy improves to begin your planning, your time might be better spent preserving and growing the value of your company so you can sell it at its highest value. This is an integral part of a successful “Exit Plan.”
Concentrating your time and energy on increasing the value of your business as a separate project, or as part of a comprehensive Exit Strategy, will make it far easier to sell your company at the price you want when you are ready.
According to a study by Bain Surveying Inc., (Sept 11, 2008): “47% of middle-market business owners 55 years of age and older are interested in selling their businesses within three years, yet 90% have not started the process of planning for that sale.”
If you own a business, there will be a time in your future that you will have to exit it; it is inevitable. Unfortunately, far too many business owners have made no plans for the most significant financial event of their lives. Get the highest value possible out of your business by being prepared to sell. As an Exit Planner and member of the Exit Planning Institute Inc., I would like to help you plan accordingly.
Preparing for the sale of your business
If you are like most business owners, you plan to fund your retirement with the sale of your business – you can’t plan for one without the other. But it’s nearly impossible to set realistic financial goals for retirement without knowing the value of one of your greatest assets – your business. By investing in a Certified Exit Planning Advisor, you’re preparing to be able to leave your company successfully and ensure your future financial security. We’ll help you assess the following:
Will you be able to live the lifestyle you have planned for the rest of your life if you don’t sell your business for the amount you need?
What happens if you can’t sell your business at all?
Maybe you have no intention of selling your business right away, but what happens if circumstances make you rethink those priorities? Will you be ready?
No matter what industry or situation you’re in, if you haven’t started planning for the sale of your business, you need to begin today.
2. Transfer to a member of your family
If you plan to transfer any part of your company to a family member, it is important (and highly beneficial) to retain a Certified Valuation Analyst to substantiate the value in anticipation of the IRS scrutinizing the valuation method used to see if the gift is undervalued.
3. An inside transfer to an employee or current co-owner
An insider who is buying into a business with very likely want to know the company’s unbiased “true value” before they buy in. Based on that value, your Exit Planning advisors can create a plan to ensure the owner “full value” in the most tax efficient way possible.
Often times current employees or family members do not have the means to pay cash for the business, so cash flow from the business is needed to pay the owner. To facilitate these transactions, minority or marketability discounts are used so the largest possible after-tax cash flow can remain in the owners’ hands. These discounts need to be substantiated by a Certified Valuation Analyst.
In all but the simplest of scenarios, a successful Exit Plan requires a Certified Business Valuation that all parties can rely on to be the “fair market value” of the business.
Sell in the open market to a third party
Transfer to a member of your family
Complete an inside transfer to an employee or current co-owner
Knowing how much your business can be sold for is essential – no matter how you intend to exit. You can exit in one of three ways:
1. Sale to a third party
For a sale to a third party to be successful, you need to be able to accurately determine that you have sufficient money to meet your lifetime financial goals after you have sold your business and paid all required taxes. A business valuation performed in advance will give you the information to determine if you even want to begin the time consuming and expensive process of selling your business.
Once you’ve decided to sell, you want a business valuation that has a basis in reality – not an industry rule of thumb. Don’t become a victim of the many sources of misinformation. The money spent upfront for a business valuation that leads to proper exit planning will be recouped many times over by the end of the sale.
Each business is unique and has its’ own risks as well as its’ own intrinsic value, so hiring a Certified Business Valuation Analyst to perform a formal business valuation will give you an unbiased, accurate idea of your business’s fair market value.
If the amount of money that can be generated from a likely sale is not sufficient to give you the financial independence you are looking for, a Certified Valuation Analyst can help point out areas for improvement. This will help close the gap between the market value and the amount you need to retire, as well as prepare you for a future sale.
Are You Prepared to Exit Your Business?
The ExitMap® questionnaire is a FREE 22-question assessment that examines your exit preparedness in four key categories: Operations, Planning, Finance and Revenue/Profit.
This invaluable assessment…
Requires NO confidential information
Takes as little as 15 minutes to complete
Includes a complimentary 12-page report (emailed to you upon completion)
After receiving your report, we will schedule a follow up debriefing to discuss your exit preparedness.
At that point, we can move forward with the more extensive 40-page ExitMap® Analysis© and break down your exit readiness in detail based on your responses to the assessment.