Business Exit Strategies – the Key to Leaving Your Business on YOUR Terms
It's Easy to Get Into Business... Harder to Get Out
And it's about to get a LOT harder. The reason to consider your need for effective business exit strategies is straightforward. The mass retirement of Baby Boomer entrepreneurs is triggering the largest transfer of wealth that the world has ever seen. Most have not engaged in any meaningful form of exit planning. As a business owner, it's critical for you to understand the potential impact that the lack of an exit plan could have on the value and saleability of your business.
In Canada, over 1.5 million businesses in the small- (less than 50 employees) and medium-size (50-500 employees) enterprise sectors are owned by Baby Boomers. Ownership planning research indicates that over 40% of these owners plan to leave their businesses within the next five years, and over 70% within the next ten years. The number of businesses sold in Canada is expected to double each year for the next ten years. This will create more business selling competition than ever before.
"...71% of small and mid-sized enterprise owners plan to exit their businesses within the next ten years, strongly highlighting the growing importance of enhancing business value. However, the challenge is that few organizations genuinely understand what actions they must take to achieve this goal...."
– Deloitte & Touche –
Are You Prepared for the Biggest Financial Event of Your Life?
As more and more businesses are put up for sale in the coming years, achieving maximum return on the investment of years of hard work will likely become much more difficult. Anticipating this process and taking advantage of optimal marketplace circumstances is an essential component of a successful business exit strategy. Timing and preparation will be critical.
An understanding of the law of supply and demand leads us to believe that a buyers' market will be the result of so many more businesses on the market. A larger supply usually means a lower price. For lower value businesses, this will certainly be true. A comprehensive exit plan, however, takes advantage of business exit strategies that recognize and address this reality. High value/high quality businesses will be more likely to retain their value. And they will be much more likely to sell.
So, How Much is YOUR Business Worth?
For most entrepreneurs, a large percentage of their wealth is tied up in their business. A successful sale of their business is critical to the realization of their exit plan and to their financial security. Few owners, however, have an objective understanding of what their business is worth, an understanding of what drives its value, or an understanding of the business sales process.
The value of your business will determine not only the quality of your life once you leave your company, but how long you will have to stay in the business before you can leave.
Some owners hope that better economic times will automatically result in a higher value for their business. Without the benefit of an exit plan – and specific business exit strategies to increase the value of the business – a delay may not bring about a higher value, and may result only in the loss of many retirement years. Or, perhaps, a business that isn't even likely to sell.
What's YOUR Exit Strategy?
About 80-90% of the businesses on the market will not sell.
Of the businesses that ultimately do sell, about 20% sell to a family member, 15% sell to an insider – a partner or manager, and 50% sell to a third party. The remainder is made up of a variety of other business exit strategies: merging with another company, implementing an employee share ownership plan, or going public.
When a business doesn't sell, operating the business indefinitely or simply closing the doors may be the only options available. Hardly the exit plan that any owner would desire.
Despite the absolute certainty that every business owner is going to leave his or her business at some point in time – voluntarily or otherwise – less than 10% of owners have a written exit plan for leaving their business.
Without the benefit of an exit plan containing deliberate, adaptable, and customized business exit strategies, how likely is it going to be that owners will be able to leave their businesses on their own terms and schedule?
Indecision – the WRONG Decision
Armed with the knowledge of impending market conditions and of the importance of developing an exit strategy, why is it that so few owners have considered ownership planning?
"...there is ultimately only one reason to create a business of your own, and that is to sell it!"
– Michael Gerber –
Simply, they are too busy working in their business to take the time to work on it. Accompanying this, unfortunately, is the single largest barrier to the successful transfer of ownership of a business – the emotional unwillingness to consider the future, and the consequent belief that exit planning can wait.
It can't.
It is imperative to start exit planning well in advance of the intended transition from ownership. The lack of adequate time to develop an exit plan and implement proven business exit strategies is the most significant contributor to a business owner not achieving his or her ownership planning objectives.
Okay – So How Do I Start?
Take action now.
Not tomorrow. Not when you think you'll find the time to get around to it. But NOW – a successful exit plan incorporates business exit strategies that take time to be most effective.
Start building your exit plan by taking the following steps:
First step: consider your primary ownership planning objectives:
The answers to these questions will largely dictate which exit planning alternatives will be available to you. And the answers may change as you learn more about the process of leaving your business. An effective exit plan must be able to adapt to changing circumstances.Second step: start to educate yourself. Recall Yogi Berra's warning, “You've got to be careful if you don't know where you're going, because you might not get there.” In other words, you need to know what you don't know. That's the purpose of the Business Exit Strategies website. It will give you a basic understanding of the business exit strategies that are consistent with your objectives.
Third step: Take action – informed action – by working with a BES Exit Planner to initiate and implement your unique Exit Plan. We can help you realize the ultimate objective of ownership planning – the successful transfer of the ownership interest in your business – to accomplish your personal, financial, and estate planning goals.
Following is an overview of the information you'll find here:
Exit Planning
For an owner considering leaving his or her business in a 3-7 year time frame, our Seven Step Exit Planning Process™ is a deliberate, adaptable, and customized approach to designing and implementing an owner's successful business exit strategy. Exit Planning considers the owner's unique Ownership Objectives to convert his or her current reality into the desired outcome. The Exit Planning process helps maximize the financial return, minimize tax liability, plan for contingencies and increase the likelihood of a successful transfer of the business. More on Exit Planning...
Business Valuation
As a business owner, you should have an objective understanding of the value of your business. That value is a critical component in the development of your exit strategy. If there is a gap between the amount you want and the amount you're likely to receive from the sale of your business, you need to know that at the inception of the exit planning process. That way, the issue can be addressed by implementing business exit strategies to grow the value of the business, thereby avoiding disappointment down the road. More on Business Valuation...
Selling a Business
If the current value of your business allows you to meet your ownership objectives now, there are opportunities in selling your business now and, potentially, significant dangers if you delay.
Preparing a business for sale – to a third party or an insider – and completing the transaction is heavy lifting, and takes more time, focus, planning, skill, and emotional stamina than most owners expect or realize. If you are intending on leaving your business within a couple of years, the best way to ensure success is to involve a professional and get organized as far in advance as you can. Our Five Phase Selling Process will improve the likelihood of closing the deal, while also reducing the level of stress on you and your business. More on Selling a Business...
Buying a Business
If you're a first time buyer, your business exit strategies should start before you make your purchase. How do you find the business that's right for you? More importantly, how do you insure that you are not wasting your time during the search process? Finding the right business is a process that starts with an evaluation of your skills, your interests, and your financial resources.
On the other hand, if you're already a business owner, acquiring another business to grow your existing one can be an effective component of a comprehensive exit plan. How can you avoid the time wasted in reviewing business opportunities not suited to your needs? More on Buying a Business...
Value Drivers
What are the characteristics that make a business more saleable and valuable? The key elements that either build the value of a business or protect the value the owner has worked so hard to create are called Value Drivers. They determine the current and future value and saleability of the business and will dramatically affect how your business is perceived by potential buyers.
If a sale of your business isn't on your horizon for 7+ years, recognizing the Value Drivers that will provide the most impact on the future value of your business will be an important component of your business exit strategy. More on Value Drivers
Business Challenges
The successful strategies that owners use to weather economic storms relate directly to preserving value and increasing cash flow in ways that foster future growth. They are the ultimate measures of how well the company will tolerate and overcome the challenges it faces today, and allow the owner to develop an exit plan for tomorrow. More on Business Challenges...
Joint Ventures
A Joint Venture, or strategic alliance, can often be the result of asking yourself, "If I had the money, what would I do?" Whatever it is that you want, there is bound to be somebody else that has that underutilized. A performance-only partnership deal with them is a Joint Venture, and is one of the most powerful tools for building your business and furthering your business exit strategies. More on Joint Ventures...
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