How to Approach Exit Planning, and How to Know You’re Ready
Whether you are a business owner hoping to pass your business on to the next generation, or sell your legacy to the best buyer, there is a significant amount (years worth) of planning required to successfully exit. Exit planning prepares business owners to maximize their business value, reduce their risk and remain in control in the process of preparing for the transfer of their wealth out of the business. Preparing to exit enables organizations to be ready for the various demands of an ownership transition.
As most businesses are not currently ready for an exit process, early planning enables owners to get into the best possible position to maximize the value of the business at exit. Today, there is unanimous agreement among the business community on the benefits of selling your company on your timing, when you are not under any pressure to do so. An exit planning readiness assessment is the launch point that prepares your business for making the perfect exit.
Exit Readiness Assessment
When considering a partner to assess your level of exit readiness, you will want to use a defined set of criteria that allows for you to select the best possible fit for your business. In addition to the fundamental elements such as industry expertise and deep operational experience, it is vital that this partner is able to properly assess your business using a proven process and framework for this type of evaluation. This begins with evaluating the strengths and weaknesses of the business while identifying the areas for improvement and value enhancement in the following (but not limited to) areas..
Exit attractiveness
What factors make your business more attractive to a potential buyer? Several factors influence the investment attractiveness of a company including revenue, financial performance, growth opportunity, market size, industry position, management team, business operations, brand value and customer loyalty.
Personal readiness
In order to understand how prepared business owners are for making an exit, a thorough analysis of personal business goals and expectations is conducted.
Value analysis
An organization will always have areas where there is room for improvement. Identifying the shortcoming in various business processes is key to bridging the value gap in an organization before putting it up for sale.
Components of an Exit Readiness Plan:
Financial Reliance on the Business: This measures how much of an owner's financial goals depend on monetizing the value they built in the business.
Desired Control Post Transition: A desire to maintain control post transition will reduce the number of exit options available to an owner.
Clearly Defined Goals: Measures the critical indicators to determine an owner's personal readiness to exit or transition the business.
Company Size: Company size and scale determines the risks associated with the business, and the likelihood of buyers’ interest.
Growth and Profitability: Measures the level of profitability and considers the level of consistent profit and growth over time.
Value Drivers: This measures the value drivers already existing in the business.
Business Weaknesses: This is a measurement of critical weaknesses existing in the business.
Vision: Buyers seek businesses with a clear future vision & direction, which helps ready the business for transition.
Strategy: Execution of the strategy indicates whether the business can remain sustainable through transition.
Employee Dependency: Measure if the management team and other key employees can run the business without an owner.
Customers: This measures a company’s focus on its’ customer relationships. Having strategies that are updated and monitored regularly, will ensure customers remain throughout the sale/transition process. Customer concentration and recurring revenue are critical issues to valuation.
Contingency Plan: Measures how well owners have prepared a contingency plan in case something happens prior to a planned exit.
Time to Implement: Generally, the more time owners have before exiting their business, the more time they will have to achieve their goals and financial objectives.
If you are a business leader seeking advisory on exit planning, we’d love to meet you where you are. Contact us at info@cosgrovepartners.com.
