EXIT PLAN – You’ll need one
Executive Summary: All business owners need an exit plan to maximize ROI, minimize tax liability, plan for the unexpected and increase the likelihood of finding a qualified buyer to carry on the business in order to achieve one’s goals.
A Baby Boomer Business Owner’s Guide to Achieving Successful Retirement Goals
Your exit plan is inevitable because, whether you decide to plan it or not, all business owners will depart from their business eventually. Planning, however, can provide you with peace of mind and assurances that your investment in your business will bring you a sufficient return when it comes time to sell.
Ideally, you should go into business with an exit date in mind. I can speak from personal experience that it is important to recognize and act when you need to move on, be it to retire or find a new challenge. Some of us are great at start-ups and new challenges and it is a mistake to hold on to a business that has lost it’s ability to keep you challenged.
With approximately 823,806 baby boomer small business owners gearing up to pack up camp and move on in the next 10 years, the market is going to be awash in businesses for sale. Studies show that many have much work to do to build enough value into their investment to make it attractive to qualified buyers. We also need to look at who those potential buyers are. The pool is shrinking. Read the CBC News article “Baby boomer retirement glut poses risk, CIBC says”
What kind of exit plan will allow you to achieve your goals upon leaving your business? Every exit plan is unique but all are critically centred around the business’s ability to consistently increase its value.
So, what are some of the key steps required to build value? Maintaining and consistently increasing cash flow; creating, documenting and using efficient systems; documenting the sustainability of earnings and motivating and retaining key employees should be at the top of your list. These are extremely important value-drivers.
Other value-drivers include a solid, diversified customer base; a well-kept facility that is consistent with your asking price; a realistic growth strategy; effective financial controls; premium location; unique concepts; state-of-the-art technology and equipment; brand recognition; professional and industry board of advisors; registered patents, trademarks and copyrights; contracts with key suppliers, partners and customers; current SWOT analysis and Strategic plan; risk management strategies. The list goes on. In order to identify which value-drivers to focus on, two key questions need to be addressed:
1. Which factor will have the most impact on your business’s future value in the shortest space of time?
2. Which factors can be most effectively managed in the long term interest of your business?
So, where do you begin? Benchmarking is a great start as you will be able to establish a baseline against which you can measure performance. You likely have a number of KPI (key performance indicators) in place, however, you need to measure every aspect of your business performance. ROI Business Group now offers a easy to use, affordable Do-It-Yourself, online Business Effectiveness Gap Analysis tool that will help you determine the gaps in your business operations that need your attention. In addition to the instantly generated Report Card, you also receive a Scorecard on 100 specific areas of your business that highlight opportunities to build greater value and improve profitability.
Please keep in mind that buyers pay for the past, but buy for the future – your business’s ability to continue to generate growing sales and profits. Buyer, whether third party or next generation family need to earn an income, pay off any debt incurred to buy the business and earn an effective return on personal money invested in the business.
It’s ACTION TIME. What’s your plan? When to you plan to exit? What do you need to do so successfully? Value building is not an overnight process so an orchestrated approach is required in order for you to fully achieve your vision and fulfil your dreams. You will need to include your legal and accounting team, business valuation specialists, business coach to keep you focussed and perhaps a family therapist to sort out any family dynamics that crop up. FYI – plan on budgeting $10 – 20,000 to develop an effective Exit Plan that will allow you complete peace of mind when you need to execute your plan. Other factors to consider, but not addressed in this article, are the 3 D’s – divorce, disease and death, all of which can take us by surprise. Plan now, reduce risk and protect the future for you and your loved ones.
As the great inventor Buckminster Fuller said, “you can’t change the way people think, all you can do is give them a tool, the use of which will change their thinking.”
Certified Professional Business Coach