Exit Planning

by Toby Dahm

Business Owners: Don’t Put This Off

Most of us have regrets about what we didn’t do. Things we promised ourselves but didn’t follow through on. Things such as exercise, dieting, having a difficult conversation, finishing that book, cleaning the basement. We know we need to do these things, but we find excuses to keep putting them off.

One thing that is seldom on the list, but is crucial for business owners, is exit planning. If you put off dieting and exercise, you accumulate some extra pounds. If you fail to plan your exit from your business you fail to feather your nest egg. This is a regret you can’t recover from.

Research indicates that 90 percent of business owners are depending on the proceeds of their business for retirement security. Knowing that, it’s daunting that a survey of owners who sold their businesses showed that the sellers were unanimous in wishing they had done their homework. Only 5 percent were happy with their net proceeds, and 75 percent regretted they sold according to a PriceWaterhouse Coopers survey.

We know the demographics. Baby boomers have reached retirement age and 250,000 are retiring each month. But, did you know that this includes 10 million small business owners that plan to sell or close in the next 10 years? This is going to flip the supply vs. demand balance greatly, and not in favor of sellers.

Some Things to Consider When Planning Your Exit Strategy

Exit StrategyIn today’s extremely buyer-friendly environment, 80 percent of businesses are not saleable. They are a passion of the owner, but are not attractive as a target to buyers. From a financial planning standpoint, these are like a job. They provide current income, but have no value apart from the owner. This makes it critical that business owners evaluate whether their business is marketable, and get a professional assessment to confirm their belief.

If your business is saleable, it’s time to start planning so you receive maximum value for your life’s work. This is also the time to consider what you want from a sale:  financial security, ongoing family prominence, a strong personal legacy? You will need to think about the buyers – who are they? What do they want?

Demonstrate your strengths. If a strategic buyer is interested in a product line, or a certain customer base, emphasize that and bolster its performance. Clean your house. Reserve disputed or questionable assets. Pay or reserve funds for past due and disputed liabilities. Make sure that when a suitor starts to dig, they don’t stumble on an isolated event and lose confidence. You want your reporting to be water tight.

By positioning your company for an exit now, you ensure that buyers don’t miss the value of your company. You make their assessment easy by doing the analysis for them. Your preparation will give the buyer confidence and streamline their due diligence. This is critical because the longer due diligence drags on, the more likely it is that something derails a closing or adversely impacts the valuation.

This exercise will improve your current business results and sharpen your focus. It will also get you ready to jump on a great offer that appears unexpectedly or to sell at a good price if something forces you to sell on short notice.

Don’t Regret It, Get Started Today

Where do you go for guidance? Your trusted advisors, such as your banker, accountant, attorney, board members, business acquaintances. You may also use your chamber of commerce or industry association for connections to people that will help you.

Don’t put this off any longer. Make time on your calendar and get going. Once you gain momentum you will find this to be insightful and perhaps exhilarating. Keep in mind that you never know when you may need, or want to sell. By planning now, you’ll be ready and get a great return on your life’s work.

About the Author

T Dahm

Toby Dahm is the SVP & ABL Portfolio Manager at Hitachi Business Finance. To get in touch with Toby, you can contact him today at (248) 658-3208 or tdahm@hitachibusinessfinance.com.

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