By: Debbie Small, Senior Mergers & Acquisition Broker with Apex Business Advisors
The vast majority of business owners NEVER strategically plan their "exit strategy," potentially leaving thousands if not hundreds of thousands of dollars on the table. Debbie Small, Senior Mergers & Acquisition Broker with Apex Business Advisors, has seen this happen too many times over her 18+ years selling businesses with Apex Business Advisors. Apex Business Advisors, located in Kansas City, is one of the largest mergers and acquisitions firms in the Midwest selling businesses across the United States.
Debbie has found that if business owners take the time to plan accordingly, not only will they feel prepared for the sale, but they can maximize the value of their company, possibly paying fewer taxes and investing the rewards of the sale with their wealth manager.
Let’s look at some fundamentals of the exit planning process.
When to Plan
As they say, the best time to plant a tree is twenty years ago; the next best time is now. You don’t need to go back twenty years to plan a business exit, but thinking 1 to 5 years in advance of your exit will give you a chance to do the tax planning, business enhancement, and transition planning you’ll need in a sale. On top of that, you’ll then be in the position of watching the market and making a move when it’s favorable for you, not just because now you’ve decided to sell. Market timing for a business sale is a factor often entirely disregarded by sellers.
What to Plan
The sale of an owner's company is often the most significant financial transaction of an individual’s life. What is it that you want to accomplish by a business sale? That question can be overwhelming, so think about it via these smaller questions:
1. What do you want your business to accomplish before the exit? Is there a revenue goal or particular milestone that matters to you? Or do you feel that the only way to get to the next level is through significant investment and hiring?
2. When do you want to exit? In the next year, the next five years, the next ten years?
3. How do you want to exit? Are you okay to stay on for a transition period or do you want to be done right away? Do you want cash upfront or are you okay with an earnout?
4. What do you want to accomplish as a result of your exit? Do you never want to work again? Do you want a break from working? Do you want to use the funds to buy a different business?
Once you’ve answered these smaller questions your business broker will have a much better idea of how to set the company up for success and let you know how to strategically move forward. For example, if you want to sell in the next year, walk away with a minimal training/transition period and all cash ... is the business ready for you to leave and is the business attractive enough and in the right purchase price range to attract an all-cash deal? Answers to these questions can drive the business changes you need to make to prepare the company to be sold. By working with a broker you can find out if your expectations are reasonable.
What to Know
Selling your business starts with education ...
What can due diligence uncover
What are Letters of Intent and Offers to Purchase
The difference between a strategic buyer and a financial buyer
The possibility of selling to employees via an ESOP
The possibility of using a deferred sales trust
Why valuations matter
These are just a few of the many areas that a highly experienced broker with a significant number of transactions under their belt will advise a seller on, but like anything in life, the more information you bring to the table, the more you’ll get out of the experience. Plus, the more familiar you are with these matters during your exit planning, the clearer headed you’ll be when it comes time to actually move towards a transaction.
Do you really want one of the most important, if not the most important financial transaction of your life to be something you compress into a few emotional weeks and months, or would you rather have the benefit of taking the time to do the exit planning now so that when those weeks and months before closing do come, they are less emotional, and as a result, probably more financially profitable? Then take the time to do the work now.
Debbie would enjoy the opportunity to team with your wealth manager and accountant to help you think through your exit planning. To learn more contact Debbie Small at dsmall@kcapex.com or 816-728-6594.