Planning: Key to a successful business exit strategy

Now is the time to prepare for the exit from your business, according to John Chappelear,exit strategy a certified strategic exit planner and author of The Daily Six, and Don Wiggins, president of Business Valuation, Inc. and Heritage Capital Group. According to these experts, who spoke at a recent Knowledge Is Power workshop, if you wait until you get a call from a potential buyer to sell your business, you will be on the defensive and will not get top dollar.

Unfortunately, said Chappelear, “People research buying a television more than they do selling their business,” he said. “They don’t know how much their business is worth.”

John Chappelear

John Chappelear

However, you can take control of the transition process and maximize the value of your business so that it looks its best to a buyer, he said. The key is to start early.

Wiggins explained that planning is a multi-step process that requires you to look at your company in an objective manner:

• Define your personal goals. What is it you want to do after you sell your business? Typically, said Chappelear, business owners develop personal goals related to funding their retirement lifestyle; staying meaningfully active in retirement; giving back to the community; and enjoying more leisure time.

Don Wiggins small

Don Wiggins

• Put together your advisory team. “This is a risk-reducer,” said Wiggins. The individuals on your team will help you throughout the exit process. The key, though, is to coordinate the activities of all of the advisors. The team should include your investment banker or valuation firm; CPA or tax advisor; estate-planning attorney; general corporate attorney; financial planner; insurance professional; real estate professional; and others as needs are identified.

• Evaluate your ownership transition options. Transition options include a sale to a third party; transfer to a family member(s); transfer to other shareholder(s); sale to management; sale to an ESOP; IPO; and liquidation. The right option depends upon your personal goals and objectives.

• Value your business. Sales, expenses, customer concentration, expansion opportunities and capital availability, and personnel are all examples of key drivers, which vary according to the type of business you have, said Wiggins.

Identifying these drivers is a critical step, because it allows you to see opportunities to improve the worth of the business. For example, depending upon the key driver and its current status, you may see opportunities to implement a marketing program to increase sales; reduce dependency on you; install an expense-control program; diversify your customer base; expand geographically or by product lines; or establish an aggressive recruitment program to find strong sales or management team.

• Develop a personal financial and estate plan. This plan makes sure you can have a life after business. Your accountant, financial planner, estate attorney, and CPA should all work together to determine your income requirements for the future.

• Document and prepare to implement your plan. Write it down—in detail.

Wiggins emphasized that the preparation process typically takes from 60 to 90 days, but it can take six months or longer.

The plan should not be a well-kept secret, said Wiggins. Rather, once you have the plan on paper, it is time to implement it. According to Wiggins, implementation may take between six and 18 months to complete. “It could be the most profitable time of your life,” he said, “because for every dollar that you increase the recurring profit of your company, the value will increase by three to eight times or more.”

Why do all this? Chappelear and Wiggins likened the business transition process to buying and selling a ’57 Chevy convertible. If you buy this classic beat up and rusted out and then try to resell it, you won’t get much for it—only a few thousand dollars. If you make cosmetic repairs, you’ll increase its value, perhaps to $20,000. But if you do a complete restoration, its value may skyrocket to $100, 000!

The same applies to your business. Planning and implementing the plan can maximize the price you command for it when you are ready to give it up.

John Chappelear and Don Wiggins spoke on Value-Track, a business transition process, at the Knowledge Is Power workshop, presented by Heritage Capital and US VenturePlex.  

Leave a Reply