Business Plan vs. Owners Exit Plan

Traditional business plans involve day-to-day operations such as creating production schedules, marketing strategies, sales projections and organization design.

It is possible however, for a business to be growing and highly profitable, and have little worth in terms of converting the business assets to cash for the owner.

The goal of an owner exit plan is to create a market for the eventual sale of the company that will produce the maximum return to the owner.  Specifically, the goals are to:

1.      Enhance and preserve the value of the company

2.      Provide a means to exchange the value for money with the least tax consequences possible

3.      Meet personal and family needs by providing security and continuity to the business and provide for family needs upon the owners planned departure or unplanned departure (death or disability)

Four Markets For Your Business

1.      Transfer of ownership to children

50 % of owners desire to transfer ownership to their children.  Less than one third end up doing so.

This is a risky market to sell to and the statistics regarding the success of businesses passed on to family members is not good.  Because this is such a difficult transfer, it is advisable to seek advice from someone with experience in family owned business succession.

2.      Sale to Other Owners and Employees

Most employees are employees rather than owners because they are risk averse and do not have the mindset of an owner. However, a good strategy is to identify a younger person who does have the mindset of an owner and train them to become the eventual buyer of the business.

3.      Sale To A Third Party

The main advantage of a sale to a third party is, with a proper owner exit strategy, you can get cash out of your company.

4.      Liquidation

If you have time, you might want to harvest your company by decreasing your investments in the company and increasing what you take out until there is little value remaining.  The last resort is to have a fire sale and simply sell the hard assets.

Finding A Buyer

As with all effective strategies, it is much better to be proactive rather than reactive.  Waiting for a buyer to find you is not a good strategy.

Many CEB members get calls from eager buyers who often turn out to be brokers looking for a commission or un-funded buyers looking for a Fire Sale.

The best way to find a buyer is to network with people you already know, such as competitors, suppliers and major customers.  The odds are high you will end up selling the business to someone you already know.

Another very effective way of selling your business is to engage the services of a transaction advisor such as a business broker, investment banker, merchant banker or M & A consultant.

How Much Is My Business Worth?

This is a frequently asked question, but one that is irrelevant.  Since the ultimate value of a company is determined by the buyer, not the seller, there are as many values as there are buyers.  A better question is, “What is the most I can get for my business under the most favorable terms and conditions?”

To assure you don’t sell to a buyer for less than a potential buyer is willing to pay, it is advisable to engage the services of a professional in the field of business valuations.

Why Buyers Pay Premium Prices

1.      A stable, motivated management team
2.   Operating systems that improve sustainability of cash flows
3.      A solid, diversified customer base
4.      Facility appearance consistent with asking price
5.      A realistic growth strategy
6.      Effective financial controls
7.      Good and improving cash flow

NOTE:  Much of the above information is taken from the book “How to Run Your Business So You Can Leave It in Style” by John H. Brown.  You may obtain a copy for $19.95 by calling 888-206-3009.