All business owners will eventually leave their business, whether it is because they chose to sell the business to outsiders, insiders, or family, or because they pass away and leave the business to their heirs. Exit planning is the process of taking control of how an owner will exit the business and taking steps to maximize value in the case of a sale, or ensure a smooth transition if the business is being left to family members.
The professionals at Waypoint Private Capital specialize in helping business owners prepare for the sale of a business by conducting a business valuation, identifying those areas of the business that should be improved prior to the sale, and then putting a plan in place to make those improvements. In 100% of the businesses we have sold, we have wished we had the opportunity to work with the owners one to three years in advance of the sale because we could have helped them improve the value of the company.
Business owners can protect and enhance their business value with an exit plan and by working closely with a investment bank. Below is a list that every business owner should read and consider as they evaluate their future plans.
Plan for the sale, it is Inevitable – every business will be sold or liquidated while the owner is alive or after the owner dies – but most business owners do not have plans for transitioning ownership of their business.
Convert your business from illiquid to liquid - on average, 75% or more of a business owner's wealth is in their business and is largely illiquid. Since it is typically their most significant asset, the best way to increase their wealth is to increase the market value of their company. At some point, the value in their business should be transitioned to their retirement portfolio or for other uses.
Begin with the end in mind - while most publicly traded companies are operated with a focus on company value, as represented by stock price, most entrepreneurial and family-owned companies are not operated to maximize the company's value. We believe business owners should focus earlier on in planning the end of their time managing and owning their business.
Plan for your future needs - many business owners do not know how much cash they will need to pull out of their company to maintain their planned lifestyle and meet their personal objectives after retiring from their company.
Selling a business is complex - most business owners think their business will be easy to sell when they want to sell, but getting full value when a company is sold is hard and requires specialized expertise. Unfortunately, 80% of small and mid-market companies listed for sale do not sell, primarily because the company cannot be sold for what the owner thinks the company is worth.