Sunday, July 26, 2009

Plan your Exit and Sell your Business at the Right Time

As a business broker one of the most concerning calls I receive is from a Seller who has not planned for his exit from the business. In fact, the Exit Planning Institute estimates that 90% of most business owners never planned the sale of their business. The impact of this lack of planning can range from very disappointing to disastrous.

A proper exit plan should include the input from all of your advisors and take a comprehensive review of your personal and business goals. A plan could take a year to design and several more years to implement prior to a sale. A well orchestrated plan includes setting financial goals, understanding the business value and drivers, business growth plans, business sale, tax optimization, wealth and death planning.

Financial Needs. Understanding the owners exact financial needs are critical to a meaningful plan. What will the owner(s) need to realize from the sale of a business, post taxes, to maintain the desired lifestyle.

Business Value. Obtain a snapshot of the business value and the key drivers. This step should be completed by an independent third party who is certified in valuing businesses. This value should then be used to calculate an owner’s net proceeds from any sale. This will answer the key question regarding timing of a potential sale.

Maximizing value. Continue to build value by optimizing the key drivers of the business. It is critical to continue to grow the business even after the decision has been made to sell the business. It can take 9 to 18 months to sell a business and during that period of time the business needs the owner to be fully engaged to ensure maximum value.

Going to Market. Assuming that a sale to an insider or family member is not viable, then this is the time to ‘confidentially’ take the business to market. You already know the value of the business and the structure that will yield you the net required to retire. Identify a business intermediary that can generate the largest number of potential buyers and manage your business through to a successful closing.

Have a Contingency Plan. As an entrepreneur you know from experience that even the best plans can unravel before your eyes. You need to be prepared for any number of things that can get in the way of you and your exit, i.e.; key employee departure, economic turmoil, owner disability, or any other unforeseen wrinkle. While you cannot plan for every conceivable problem, it is absolutely possible to build contingencies that contemplate the continuing operation of your business.

Managing the Proceeds. Understand what will happen with the proceeds from any sale. How will your money be managed to afford you the lifestyle you desire and minimize your tax liabilities.

Estate Planning. This step should consider the needs of the owners spouse and heirs. Not only how much money will be transferred but in what vehicles will the wealth be held to minimize the tax liability of the beneficiaries.

This type of plan requires a competent team of advisors who are committed to the exit planning process. Your team should include an attorney, accountant, wealth planner, insurance advisor, banker, business valuation expert and a business consultant. An exit planning team leader who has a process and the experience to lead these advisors to your desired outcome is a critical piece of building and executed a plan.

Planning the exit from your business will give you the best chance at maximizing your proceeds and achieving your post-ownership goals.

Tuesday, July 14, 2009

CIT Bankruptcy will impact Business Acquisitions Financing

The potential bankruptcy and failure of CIT could prove disastrous to small business. CIT has been a significant force in lending to small businesses for start-up capital, working lines of credit, leasing and business acquisition loans. While CIT lending activity has been quiet for many months they have continued to provide a lifeline for many small businesses during the recent financial crisis.

CIT has petitioned the federal government for additional funds to maintain their liquidity. Thus far, the government has been slow to respond to this potential bankruptcy which I believe is critical mistake. There seems to be growing sentiment that other financial institutions will step in to fill the void left by a CIT bankruptcy. I have not seen any evidence that there are other banks willing to lend to small businesses. In fact, we continue to see loan requests put into a holding pattern and loan brokers have told us that the banks are showing no signs of life.

Small business owners with lines of credit from CIT are, and should be, very nervous right now. If a CIT credit line is cancelled I do not see any banks lining up to replace these loans. There may be a secondary market willing to fill this gap but it will come at a dear price to business owners in the form of exorbitant interest rates and onerous terms.

CIT may be too big to fail and the government should act quickly and decisively to avert derailing the timeframe of any economic recovery.