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Exit Planning

Posted by Kevin Freeman

Tue, Aug 25, 2015 @12:33 PM

“Failing to plan is planning to fail”

Every business owner, regardless of size, should have an exit strategy for his or her company. Failing to have a sound, up to date exit plan could cost an owner hundreds of thousands or millions of dollars in sale price.

A key piece to an exit planning involves putting together the right team of advisors. That team should include an M&A (Mergers and Acquisitions) Intermediary, a Business Attorney, a CPA and a Financial Advisor. This team will work together to consider legal, tax and financial matters when considering the sale or merger of a company.

A strategic exit plan begins with valuation. Every CEO should have a firm understanding of what their company is worth in an acquisition.

A valuation measures many facets like cash flow, profit, revenue and both tangible and non-tangible assets like goodwill amongst others. Factors like economies of scale and synergistic qualities with other firms of equal or greater size are also considered.   

Part of the exit strategy process should be a look within the company’s infrastructure. Things that can negatively affect the value of the company are:

  • Key Employees not having employment contracts with non-compete clauses
  • Being over-dependant on one vendor, supplier or manufacturer
  • Organizational Chart – not having proper management in place.
  • A high percentage of revenue and profit being tied up in one client
  • Books and Records – company records, including corporate by –laws, articles and other related items not being organized or up to date
  • Patents and Trademarks not being filed and up to date
  • Not having clean and organized income statements

The largest factor in valuation however is the company financials. Most buyers, unless Strategic (buying for a particular product or customer, etc), consider EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) as the determining factor of the value of the business. Having the other items in order will solidify that value; not having them considered with certainly hurt that value.

An important consideration in the value of the company, when reviewing the books, is bottom line profit. While most small to medium business owners live out of their business, it is very important in preparation for a sale to minimize discretionary personal expenses and allow for profit to drop to the bottom line. Saving a few thousand in taxes now may cost a business owner a hundred thousand in sale price later. This should be considered in the year or two leading up to marketing a business for sale.

Another key element to a successful exit plan is a having a solid succession plan in your company.  An owner or one key employee should not have all of the intellectual property or contact with clients. The business should be able to run efficiently when the owner or key employees are not available. Having a number of employees cross trained to handle several aspects is very important to perspective buyers.

With a great exit plan and the right advisors an owner can maximize the value of their company and move to their next adventure.

Topics: sell your business, Selling your business, exit, sell, selling, exit planning

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Do you own your own business?

The US economy is driven by entrepreneurs - small and mid-market businesses, more than 20 million of them, many of them privately-owned. It is often difficult for owners to convert all of their hard work and ingenuity into an equity event. It is a complex and time-consuming process. Stony Hill Business Brokers has the experience and expertise to assist with selling a private business successfully.

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Is it time for a change?

All of the partners at Stony Hill Business Brokers have been entrepreneurs in private businesses and have had experience managing and selling their businesses. We understand the grind of running your own show and the uncertainty of getting the most value for the business.

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Are you looking for guidance?

We have particular experience with the small business market in eastern Pennsylvania, New Jersey and Delaware. We can provide advice on preparing a business for sale, even years in advance. We can help buyers find the right business for their circumstances. And we advise both sellers and buyers throughout the process to assure a quick, smooth transfer of ownership.
Do you own your own business?

The US economy is driven by entrepreneurs - small and mid-market businesses, more than 20 million of them, many of them privately owned. It is often difficult for owners to convert all their hard work and ingenuity into an equity event. It is a complex and time-consuming process. We understand the grind of running your own show and the uncertainty of getting the most value for the business. Stony Hill Advisors has the experience and expertise to assist with selling a private business successfully.
Are you looking for guidance?

We have experience in the small and mid-market business market with companies having revenues from $1M to $50M . We can provide advice on preparing a business for sale, even years in advance. We can help buyers find the right business for their circumstances. And we advise both sellers and buyers throughout the process to assure a quick, smooth transfer of ownership. In some instances, the parties to a transaction locate each other through informal industry or personal channels. These transactions include sales to unrelated third party acquirers, as well as management, family and partner buyouts. Stony Hill Advisors is frequently engaged to structure these transactions and navigate the many issues requiring attention from the initial stages to the consummation of the transaction. Often Stony Hill Advisors is engaged to provide Exit Value Planning to prepare a business for highest value when it is time to transition.

 
Are you interested in buying a business?

Stony Hill Advisors assists companies, entrepreneurs and corporate executives develop and execute customized acquisition strategies designed to result in successful acquisitions. We will find a unique business that is not necessarily “on the market”, resulting in a cost-effective acquisition.

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