Six Ways to Leave Your Business

 

Selling your business is not the only way to leave your business.  There are other options of which you should be aware.  In the list that follows,  some other methods exist but are not feasible due to size, profitability etc.  After reviewing the list, you’ll see that some exit options are more desirable than others.

Before embarking on the sale of your business, you should understand these six exit options.

Sell your business: Possible buyers include co-owners, family members, friends, individual buyers, a single employee, a management buyout, an Employee Stock Ownership Plan (ESOP), larger corporations (strategic acquisitions), private equity groups (PEGS) or private investment groups (PIGS) (also known as financial buyers), customers, suppliers, and competitors. Basically, outside sale or inside sale.

Gift (Legacy) your business ownership: Possible recipients include family members, friends, employees, or charitable organizations.  The tax implications of gifting your business are very complex and may require a considerable amount of time to plan the transition of your business through gifting.  If this is your chosen method of exit, start planning many years in advance of your desired exit date.

Liquidate the assets: If your business cannot be sold as a going concern for more than the value of your hard assets, liquidating the sale-able assets through auction is one method of generating funds.  However, any sales proceeds must pay off the debts of the business before you can be paid.  This is one of the least desirable exit options and is the price many business owners pay for their failure to adequately plan their business exit.

Close up shop: If the business cannot be sold and does not have any assets of real value, and the business does not have other obligations in the form of debts, leases, etc., an owner can just close the business and walk away.  Or, if corporate obligations exist, those obligations can be transferred to the owner personally.

Bankruptcy: If the value of the business, whether as a going concern or its asset liquidation value, is significantly less than the company’s obligations, declaring bankruptcy might be an exit option.  Bankruptcy laws are complex and you should seek the advice of professional attorneys & CPA’s if you are considering this alternative.

Merger: This occurs when two companies combine their operations into a newly created third entity. This is different than a strategic acquisition whereby a larger business acquires a smaller firm and integrates the smaller company’s operation into the larger company’s operations.  A merger may not provide an immediate “cash-out”, but instead provides ownership in the newly created corporation.  Although possible, mergers of small businesses are unusual.

Other consideration: Hire a manager for the business and become an “absentee” owner: In this situation you would still own the business; this is really a partial exit option.  Obviously, unless you fund the business out of your own savings, the business needs to generate enough cash flow to allow you to hire a qualified manager, enabling you to step away from the business to the extent that you desire.

Although not included in this list, death or illness is an unplanned exit that occurs for far too many owners. About 50% of businesses are sold below their market value. This is a direct result of the four D’s: divorce, departure, disability or death.   Selling your business because of the four D’s often results in a sales price below market if there is no plan in place. Also, the owner has not developed a contingency plan to deal with that possibility, the distressed family will often have to settle for the less desirable options to dispose of the business, usually pennies on the dollar at an asset sale.

 


The Top 10 Ways to Increase Your Business’ Value

Everything you must do to prepare to sell your business is important, so it’s difficult to boil this article down to only 10 things.  But following are 10 things most owners have not accomplished and that are critical to having a sell-able business and increasing the value of your business.

1)   Start planning your business exit NOW.  The number one reason businesses don’t sell is owners don’t realize the need to plan for the sale of their business.  Before you can work on increasing the value of your business, you need to start the exit planning process so you understand all aspects and determine what’s necessary to even have a salable business.

2)   Get the realistic value of your business. Your business value can be determined by calling a business broker / consultant and asking for a Broker Opinion of Value (BOV) of your business.

3)   Develop a plan to begin overcoming the obstacles you face.  

4)   Replace tax minimization accounting policies with profitability maximization policies.

5)   Increase your gross margin to increase your profitability, and thus the value of the business.

6)   Increase your sales and marketing efforts.   Many businesses have significant opportunities for improvement in this area.

7)   Implement marketing automation.  The opportunities for significant revenue growth through marketing automation are very real and the cost is inexpensive when weighed against the benefits (which are amazing!).  Although there are numerous marketing automation service companies, consider reviewing the free resources (webinars, reports, videos and articles)

8)   Systematize, perfect and document your business operations.

9)   Steer away from a Flat organization and develop second-level management to minimize your importance to the success of the business.

A flat organization refers to an organization structure with few or no levels of management between management and staff level employees. The flat organization supervises employees less while promoting their increased involvement in the decision-making process. This means that employees can bypass middle management and communicate directly with higher management or the Owners. Though this may be touted by giants like Google, for the small business intent on scaling building value and then perhaps selling or getting acquired, it is BAD!

10)  Write your buyer’s “general” business plan and 90 Day road map.

Im not a big fan of Business Plans but having something is better than nothing and it show good will towards a buyer if you invested that little time to help the succeed. At Max Business Profits, we use Road MAPs (Massive Action Plans) which can be corrected and revised on a dime if necessary, based on changing market conditions or internal planning.

CAUTION!  Although these ten suggestions will set you on a great path to successfully selling your business, do not ignore the rest of our blogs containing much more information, suggestions and details to help you successfully and profitably sell your business. These are just the obvious! Well, obvious to me, at least!

Can You Afford To Sell Your Business?

One of the primary reasons business owners sell is to enter the retirement phase of their lives.  Especially when that is your motivation, you need to determine if you can afford to sell the business.

If you don’t try to ascertain affordability up-front and put your business on the market without that information, you may be surprised and it’s not unheard of for sellers to back out of an agreement just before closing.  That can be emotionally painful while also creating potential legal issues.  In addition, if a confidentiality breach occurs as a result of such a scenario, you run the risk of damaging future sale-ability of your business.

Obtain a realistic QUALIFIED estimate of the value of the business

The first step to determining if you can afford to sell a business is to obtain a realistic estimate of the current fair-market value.  Many business brokers are not interested in developing long-term relationships with prospective sellers unless they feel it is going to end in a commission.

In fact, recently, while listening to a well know broker teaching a class on MLS membership, he mentioned that brokering hasn’t changed in decades and decades. It’s basically selling J-O-B-S to whoever wants to buy one! Incredible attitude if not perspective!  As a former multiple business owner and consultant for business owners, not only did I find it offensive but cemented in my mind that differentiating your business from another is CRITICAL to building value. That’s what I have been doing for my clients for years.

Find a professional adviser / broker with business exit planning experience

Once you have a realistic idea of the current value of your business, determine if your existing professional advisers have business exit planning experience.  Exit planning can be a sub-specialty for other licensed professionals such as CPAs, attorneys, financial planners, investment consultants, etc.  Another alternative is working with a certified exit planner, a relatively new profession that specializes in helping small business owners through the business exit planning process.

Estimate your future income

Although it is not unusual for the company to be a business owner’s largest asset, there are usually other types of income and assets that should be taken into account when planning for retirement.  These may include spousal income, Social Security income, other retirement income and plans, IRAs, annuities, other types of investment securities and savings, real estate holdings, life insurance cash values, etc.  In addition to the net proceeds from a business sale, those other assets and income should also be factored into the retirement calculations.

Estimate the net proceeds of a business sale after taxes and debt repayment

In the previous sentence, note the phrase “net proceeds” from the business sale. The selling price of a business is often far more than the net proceeds ultimately retained by the seller. There will be tax implications of selling your business, and in many instances they are very significant.  In addition, out of the gross proceeds of a sale, you may have to pay off outstanding liabilities of the business, which can include accounts payable, working capital loans and other types of loans for items such as equipment, automobiles, real estate, etc. that were carried on the company’s books.

Consider your post-exit lifestyle

The type of lifestyle you want to live in retirement is also a major consideration.  If you want to travel around the world or maintain a second home, you need to determine the affordability.  Depending on individual circumstances, lifestyle and expectations, some may need $3,000/month to retire comfortably, others may need $15,000/month.  It is important to estimate your retirement living expenses and it’s best to work with a professional to get through that process.

Determine if you can afford to sell the business

Working with professionals to help gather all the data necessary to project the affordability of your desired retirement lifestyle is a critical step in the exit planning process.  In many instances, business owners need to adjust their lifestyle expectations to the reality of their personal financial situation.  It is far better to accomplish that early in the process of making the decision to sell your business.

The biggest issue I have found is not so much the Post-Sale lifestyle and expectations but the present market value and what the owner THOUGHT it was worth vs. reality!  The majority of the time we have to build or scale the company upward and increase revenues and value to try and intersect what the owner may require with what it is worth on the market.

One last fact many brokers won’t bring up is, the fact you, as the seller, may need to hold 10% or 20% or more in a Note from the Buyer. It’s a fact of the industry that 60% of businesses that sell, require seller financing to some degree. That percentage may even be higher than that, in my experience. A Note is not always a bad thing; you can earn an extra 8-12% on that outstanding money for a short period (1-5 years) but the down side is, you don’t have it at closing.

So, what’s your next move?

Obtain a realistic QUALIFIED estimate of the value for the business! Call us at 888-504-1105 to arrange for one or advice on getting one.

The Low-Cost Method to START Business Exit Planning NOW!

Although I strongly recommend you ultimately use a Certified Business Exit Adviser, like myself, to participate in the process of creating a formal business exit strategy and options, you can start the process very inexpensively by educating yourself on multiple angles of the process.

CAUTION -If you decide to start the process yourself to save on fees, start today and dedicate yourself to accomplishing the tasks.  If you can’t or won’t commit the time, or procrastinate, you are better off immediately having professionals start and guide the process and hold you accountable.

Six preliminary steps to start the exit planning process without spending much on professional fees.

 

1.Self-education: 

There are lots of books that address this very issue.

2. Obtain a realistic estimate of the value of your business

To plan where you are going, you need to know where you are currently.  As a business owner, you need to realistically assess the current market value of your business.  Pay for a real, unbiased market valuation from a broker of consultant! If a broker requires a fee for the work to be performed, it is worthwhile.

In addition, you need to identify the obstacles you face in selling your business.  And it would help to know what you can do to improve the value of the business.

This is a great way to start the exit planning process and in most instances, can be achieved at a low cost. 

3. If you own the Real Estate your business sits on, obtain a realistic estimate of the value of your real estate holdings

So Important! Your business is a separate entity regardless of where i sits.If you are unsure of the realistic values of your real estate holdings, most residential and commercial real estate agents will provide a comparative market analysis (CMA) at no charge. Because commercial real estate valuations are more difficult to ascertain, consider obtaining multiple CMAs from multiple agents.

4. Prepare a list of your personal financial assets and liabilities

To enable a productive meeting with a personal financial planner to help with retirement planning, future income requirements and tax consequences of selling your business. We can make trusted recommendations to you on this. Then meet with personal financial planners.

5. Consider your post-exit interests

Determine your post-exit interests, discussing with your spouse or significant other where applicable, and try to develop preliminary but flexible plans.  One aspect of exit planning is projecting your future income needs; those are totally dependent on your lifestyle expectations after you leave your business.  Even if you are more than ten years from selling your business, have this preliminary discussion.  It doesn’t have to be decisive and can be flexible, but it’s very important that the conversation take place.

6. Talk with your Certified Exit Strategist!

After receiving feedback from business brokers and personal financial planners, begin the discussion with your certified business exit planners.  Once again, you can expect a free initial consultation.  Provide them with the information you’ve developed so far and ask what they can do for you and how they will go about it.  Based on the data you provide, they should be able to provide a proposal with a fairly tight estimate of their fees to coordinate and complete a comprehensive business exit plan.

Again, we, at Max Business Profits not only provide the above, but are also qualified and experienced to bring your business value & revenues in line or at least closer to your financial goal when selling!

I cannot stress this enough!

Whats the point of selling for $350,000 when clearly you need or expected $500,000! Doesn’t matter if its 3.5 million dollars or 5 million dollars either! It’s just a question of decimal placement! what you need is what YOU NEED!

This approach gets you personally involved and helps provide a preliminary education before a comprehensive exit plan is completed.  That’s a good thing, but only if you do not procrastinate in the information-gathering process.  If you are unwilling or unable to commit to the self-education time required, then simply start with identifying and interviewing certified business exit planners.  You’ll likely spend just a little more on professional fees, but it will still be one of the best investments you’ll ever make and minimize the time required on your part.

 

 

 

Why an Exit Strategy is CRUCIAL!

We all remember why we started our own business and, in most cases, we understand “what” our business model is and “how” we were going to run that business. But what we don’t spend enough time doing, is thinking about “when” we are going to get out of business or transition that business to a new buyer and liquidate our efforts into a payday.

It’s a fact that most business owners have 80-90% of their Net Worth tied up in their businesses and that only 75% of owners even remotely know what their business is worth.

Another shocking statistic is 10-20% of businesses placed for sale ever sell at all.  Incidentally, of the businesses that do sell, the average sales price is only 75% of the list price and usually includes some form of owner financing and “hold backs” or “earn outs”. Which means the owner did not cash out!

Those are pretty scary statistics considering the time, effort, money and stress your business has put on you and your family to get to where it is now. The reason; It was a question of “risk for the buyer! Risk not mitigated earlier in the process.

 

Max Business Profits specializes in helping business owners come up with an Exit Plan, implement your options and prepare your business for sale at a premium price.  Typically, a business requires 2-5 years of planning, collaboration with your employee team and financial professions such as your CPA and financial planners. We are routinely referred by these professionals to help their clients achieve maximum profits at the time of sale and more importantly during the “preparation” period prior to a sale. We have helped numerous clients grow or “scale” their businesses by using our proprietary system that addresses not only revenue promotion, processes and several other documented “profit” or value factors that every business needs to implement for success and PROFIT!

Contact us for a Free Discovery Session.