If you were told that you could receive 20% or more for your business by planning at least a year, preferably two years ahead of selling, would you do it? Most owners don’t formally plan to exit; therefore, they don’t maximize their value. And about half of all owners sell when approached by a buyer, which isn’t a good way to get your optimal price.
A well-managed and executed exit plan will provide most sellers with a very positive outcome and will greatly maximize one’s ROI. The planning process should identify opportunities to:
- Make small changes to enhance the business which will increase its value before selling
- Put certain company assets in an owner’s pocket before a sale, versus giving them to a buyer for free
- Reduce tax implications
- Protect your business investment and mitigate risk
- Develop and put in place alternative contingency plans in case of unforeseen hiccups that may come up prior to a sale
- Minimize or eliminate landmines early on
- Allow you to always be ready when the most opportune time arises to sell
- Dramatically increase the likelihood of success
Some of the things to consider when developing your exit plan include:
- Defining what your exit means to you and with whom
- At the right time, with whom will you be open to have discussions? Family members, employees, competitors, customers, strategic buyers, private equity groups, high net worth individuals, other investors?
- Is gifting an option?
- Are you interested in a merger?
- Are you looking for partial or total liquidity?
- Would a recapitalization make sense?
Establish your goals
- A very important and often overlooked consideration is to envision your life after selling. Do you want to retire completely or be available to transition the company to new ownership for 1 to 5 years?
- Is your business positioned to sell now? Is it financially and operationally sound?
- How much income do you need post-sale?
- Are your spouse and other family members aware and on board with your exit plan?
- Do you have an established timeline? Do you hope to sell in 2 years, 5 years, 10 or 20 years?
Put it on paper. Your M&A advisor will work with you and a team of experts to create a written plan. This plan will include:
- A statement of objectives
- A periodic valuation of the business. This should be conducted by an outside party familiar with what buyers are paying for like-kind businesses.
- A thorough analysis and positioning of the business. Is the business in the best possible position to sell today, or is an enhancement plan in order?
- Strategies to address your particular situation
- Contingency plans, in the event of the unexpected (illness, death, loss of key employees, downturn in the economy)
Close the valuation gap. Put very simply, this is an exercise in defining where you are currently, where you want to end up, and the gap between the two. As simple as that sounds, it’s actually a process of evaluating many combinations of exit strategies to see which situation provides the best possible outcome for you, in terms of wealth and lifestyle. Planning and executing an exit strategy can be a complex process that calls on many areas of expertise. Your M&A team and advisors will help you identify and analyze all options and opportunities, understand the pros and cons of different scenarios, maneuver the mazes of taxation, financial planning and legal issues, and meet the goals you established. You and your advisors should revisit the plan annually, and make any necessary updates.
For help in any stage of your planning process, or for advice on how to get started, contact us at 913-648-0185.