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.

1 comment:

buytradebiz said...

Good informative article..

Thanks for the post.