If you’re thinking about exit planning and the eventual sale of your business, give yourself time to gather information. That way you can understand what actions you should take to adequately prepare for this life-changing event.
Sadly, most business owners underestimate the amount of time and preparation that it takes to sell a business. Most most businesses are:
- not sold at all (less than 20% ever sell); or
- sold for less than the owner wants
Many business owners underestimate the complexity of a business sale. After all, they understand their business but often have no real idea of what it is worth. They find a buyer, exchange funds, and, voilá! The deal is done. It sounds easy, but to be honest it is not.
Creating an exit plan is critical
Whether you choose to invest the time and capital to grow your business in anticipation of a sale (become what we call a Value Accelerator) or stay the course as a Lifestyle Business Owner, planning is crucial. What do we mean by those two terms?
A Value Accelerator grows his or her business as a financial asset, in order to maximize profits from an eventual sale. They plan ahead, often relying on a Business Advisor and other professionals. That way they can make changes and improvements that will make the company more appealing to a future buyer. This takes time (often a year or more) and capital, but if done well can greatly increase profits from the sale.
A Lifestyle Business Owner, on the other hand, is less worried about the profits from the business sale – very often it will not sell at all. He or she is most concerned about growing assets to maintain their lifestyle following an exit. Working with a financial professional who can combine business planning with this long-term personal planning will ensure optimum outcomes.
Knowing Your Business’ Value Can Solidify Your Exit Planning
Without knowing what you currently have, it’s difficult to create a plan that allows you to pursue what you want and need.
This applies to goals you may have for your post-business life, such as traveling more or spending more time with family or friends.
It applies to goals you may have to leverage your business’ success as a force for good in the community, such as through charitable donations.
It applies to estate planning goals you may have, such as passing wealth to future generations.
Being overly ambitious about what you believe you can do – based on a gut feel or rule of thumb about what your business is worth – can damage how the business functions.
Conversely, underestimating what your business is really worth today can focus your attention. It allows you to pursue important short-term and long-term goals right now.
Exit Planning is an area in which we excel, because our experience shows how important it is. We keep your plans in strict confidence.