Don’t Forget About Exit Planning

by Greg L'Herault

Most of us have regrets about what we didn’t do, things we didn’t finish.  Things like seeing the doctor, exercising more, eating better, having a difficult conversation, cleaning out the garage. We know we need to do these things, but we find excuses to keep putting them off.

One thing that’s rarely on the list, but is crucial for business owners, is exit planning. If you fail, forget, or neglect to plan your exit from your business, you fail to feather your nest egg. This is a regret you won’t recover from.

The demographics are widely known. Baby boomers are reaching retirement age. But, did you know that this includes millions of 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 also need to think about who would buy your company. 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 potential buyer starts to investigate, 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 an 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.

Don’t put this off any longer. Make time 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

GregLHeraultPicture

Greg L’Herault specializes in asset-based lending at Hitachi Business Finance. Contact him today at (303) 506-5095 or glherault@hitachibusinessfinance.com.

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