Exit and Succession Planning

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Why even have an exit strategy and plan? A big reason is the upcoming demographic change. Many sources are predicting that 50-70% of small to mid-sized businesses will change hands by 2020. Even if this is off by half, it’s a lot of businesses and a lot of seller competition.

Not having an exit strategy means you have no strategy. Working hard for an income is great. Working hard for an income, legacy and a large upside is even better.

Exiting your business can be an emotional time. There are family dynamics, trusted employees to take care of, financial planning concerns and the question of what will you do if you sell your business?

We help our clients choose an exit strategy. This includes planning, preparation and exploration of options. It means not only preparing the business but also preparing the owner.

A transition to family members, a management buy-out, an ESOP and absentee ownership are options. Selling to outside parties, however, is often the top choice, and often the most lucrative. Of course, whom do you sell to, and for how much, is a key issue.

Different buyer types have different needs and wants. Understanding what each type of buyer wants is a key element to any exit plan and the related company preparation.

The key to selling a business for top dollar and with less stress is to follow an Action Plantm  to Sell a Business.

  • Arrange all the affairs of the company.
  • Coach and counsel the company. Its people, process and systems must all be running efficiently.
  • Transmit and teach all the good “things” about your firm to the buyer. Those “things” are:
  • Intricacies that make your company special.
  • Operations and management systems that are in place and will make a transition smooth.
  • Numbers, all the financials in understandable form, straightforward with no “tricks.”

We specialize in a systematic, organized approach to the selling process.

Planning starts with the valuation and the identification of where we can make improvements (given the time parameters for the situation). Then we identify likely buyer types, do market research and answer the question, “Why are you selling?”

Preparation is doing the little things that make the business more attractive to a buyer. Every business has risk. By documenting how the risks are overcome you make it much more appealing.

There are three areas that must be addressed in any exit plan and company preparation. They are:

  1. The financial systems and reports. Too many sellers have left too much money on the table through sloppy accounting, an excess of blending of personal and business expenses and inaccurate reports.
  2. The sales and marketing plan, its implementation and monitoring. Nothing frustrates business owners and buyers more than marketing. What was done? How did it work? How do you know it worked? The right answers can increase the price and terms.
  3. The systems you have in place, in all departments. Buyers often have energy and want to grow the business they buy. The less involved you (the seller) are the better. A big factor in value/price reduction is an over dependency on the owner.

Presentation can be a key issue. In many situations when there wasn’t time to plan or prepare, a dynamic presentation has saved the day. Emphasizing the business’ strengths and acknowledging the weaknesses (and how you have neutralized them) in an attractive and professional package can sway a buyer.

An Action Plan saves time and anguish because we now know:

  • What were the weaknesses, how they were fixed so value is increased.
  • Who your potential buyers are (individual, family, equity group, employees or corporate)?
  • What exactly you are selling and what it’s worth?
  • Where your buyer will come from (local, regional, national)?
  • When you need to sell (timing can be everything)?
  • Why you are selling (how you explain it can make or break a deal)?
  • How you are going to market the company (by yourself or with an intermediary)?

Deal structure, due diligence (on the buyer), negotiations, educating the buyer, closing the deal and escrow supervision are skills we’ve refined over the years of working on numerous deals.