Having an exit plan in place promotes long-term business success and improves personal satisfaction. Planning early with a comprehensive understanding of different exit strategies will give you the insight you need to maximize your business value, whether you plan to sell to an outside buyer or key employees or pass it on to family members.
As promised last week, let’s dive a little deeper into each of the Top 10 Benefits of Exit Planning. Here are the first three.
- Ensure That Your Goals Are Met
Owners have both financial goals as well as non-financial goals when they transition the ownership of their business to others, whether to an internal or external buyer. It is important for each shareholder to determine how much money they need from the sale of the business to maintain their lifestyle and carry out their activities in the next phase of life. We call this your Wealth Gap. However, financial independence may not be the most important goal of every owner as they exit. If there are multiple shareholders in the business, the shareholders’ goals and personal timelines for exit should be discussed and aligned before an exit strategy is chosen.
Examples of non-financial exit goals include:
- “Taking care of” loyal management and/or employees who helped grow the business
- Providing for family members that may or may not be active in the business
- Continued involvement in the business by the shareholders
- Spending more time on activities outside of business
- Determine How Much Growth Will Be Necessary to Meet Your Financial Goals
Many owners will have to boost the value of their businesses before they transition them to new owners. If these owners were to sell today, they would not net enough money from the transition, after taxes and fees, to fund the rest of their lives. It may also be necessary because multiple family members have been added to the payroll and the business cannot support everyone now, and in the future, without increasing cash flow.
Once your goals are defined, it will be easier for you to determine just how much you will need to grow the business in order to meet those goals.
- Maximize the Value of Your Business
Whether you plan to sell your business to insiders or an external third-party, a healthy profitable company is the key to achieving your goals. Owners who want to exit in the near future need to think strategically, like buyers, to determine the best way to restructure and reposition their businesses in this new world.
Beauty is in the eye of the buyer, and buyers are looking for profitability, sustainability, and transferability in their acquisition targets. They’re looking at your business as a group of processes that produce products and/or services that generate cash flow. They want to buy profitable businesses that run smoothly, have minimal risk, and strong future potential. It will be important for you to take a close look at every area of your company (i.e., pre-due diligence) from a buyer’s perspective to ensure that you are maximizing company value.
The Bottom Line
Going through the exit planning process will help you determine the most efficient and profitable use of your resources. Understanding all the benefits, having a focus, and knowing that you are making progress toward your eventual exit will help you maintain your personal energy and gain the momentum you need to achieve all your goals.
Next week, we will look at more benefits of exit planning for business owners!