If you’re thinking about someday selling your business, as most owners are, you need to plan ahead and start your process early. It often takes a long time to find the right buyer for your business.
You should always be thinking about exit planning. Some owners think they can sell their business within a few months, but the chance of that happening would be miraculous. Other business owners think a 3 – 5 year window is a reasonable range of time to plan the exit of their business, but this is also very shortsighted. What’s even more astonishing is that about 70% of business owners surveyed do not have an exit plan.
Instead of getting a sales check, business owners may be getting a reality check.
As early as possible, business owners should begin picturing exactly what they want when it comes time to exit their business. Do they plan to close their business, sell it to a third-party, sell it to an insider, or stay in business part-time or remain as an advisor? Owners should also bring together their team of professionals…their accountant, attorney, and business broker, quarterbacked by their financial planner, to make sure everyone is focused on the same outcome.
If you want to sell your business, you should be looking to maximize the value of your business years ahead…in fact, as soon as you purchase or start your new business. Time is your ally, giving you the opportunity to build and shape your business for sale.
Just as a homeowner tries to optimize the value of their home by adding an extra bedroom, or putting on a new roof, installing a few windows or building a deck near the flower garden, so also should you be developing the facets of your business by adding to your product line, increasing sales, building goodwill, etc., so more value is constantly being created.
Remember that the marketplace will assess the true value of your business according to legal standards of value that can be represented and reviewed in a court of law, so having your business assessed through the process of a business valuation is a serious event. You may think you know the value of your business through your own estimations of EBITDA or other arbitrary assumptions, but the market will rely on the official valuation of your business’s worth.
Rather than be severely surprised by a dismal valuation, it will pay you royally to know ahead of time how the market will weigh the worth of your business so you can prepare now, with years you can use, to build your business in ways the market will appreciate and reward.
It is also always a good time to begin identifying possible buyers because the sooner you begin, the more likely you are to find one! With Baby Boomers turning 65 at the rate of 250,000 per month, many businesses will go unsold and simply shutter because there is a lack of buyers and a lack of salable businesses. As a business owner, your future buyer could be very close by, and you might think about nurturing your relationship with an interested family member, an employee, a customer, a vendor, or even a nearby competitor who may wish to expand their market reach. Finding a buyer takes a lot longer than most owners realize, and the process of selling your business is more complicated than selling your home, especially when selling a larger business.
Remember to start your exit planning process immediately so you can use time to your advantage and have the opportunity to build your business in ways the market values. Having an exit plan is essential to good business practices so you can create the future you want through clear and careful planning that helps you transition out of your business with less anxiety and a lot more money.
We hope this article about exit planning was informative. Synergy Financial Management can help with developing, managing and achieving your exit plan goals and the sale of your business. Please contact us so we can discuss ways to increase your personal wealth and enhance your retirement. Thank you!
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
Synergy Financial Management, LLC
701 Fifth Avenue Suite 3520
Seattle, Washington 98104