Exit plan and selling a business
To sell a business with an exit plan is simply good business. A business is a ball of energy, never sitting still but reacting and moving in different directions as the economy changes, new tools and innovations come to market, the stress and strain from competition and the ever changing demands of customers. The challenge to succeed, feed their family, help and create happy customers and other individual motivations are what gets a business owner out of bed every morning. It also includes the chance to do something different, learn something new, to see the rewards of hard work, to plant new ideas and watch them grow or to help someone do something they thought they may not be able to do.
If the business owner loses the hunger to learn, be the vision and leader of the business, it’s time for a change. Because a business is so dynamic, it requires leadership. If this doesn’t happen it will shrivel and die. Capital, time and energy must keep moving otherwise it will slowly die and fade away.
If the business owner leading the business recognizes it is good business to plan for a change of ownership and therefore handle the change of ownership in a positive and proactive way. If this is done, the chances of the business continuing to succeed are much greater and so are the chances of the owner getting the highest price possible. There is a very simple reason for this. The buyer of a business looks at and includes many things in their decision making process. However, there are basically two ingredients, the cash flow the business generates and its potential to generate more cash flow in the future. If either one is missing or it is unclear, the buyer will require a discount on the purchase price of the business and it will take longer to sell, if it sells. If both are missing, it will be a business extremely difficult to sell as buyers will simply have other choices.
As the business owner works through their decision to sell the business, a critical component to help them sell successfully is to start to put into place what the business owner will move to after they sell the business. It can be intriguing to watch older business owners’ work through the process of selling a business, handling all the negotiations and questions from the buyer and just prior to signing the documents to transfer ownership to the buyer, decide not to sell. The reason they decide not to sell is because the appeal of cruising the world or playing golf 5 days a week or looking after the grandchildren all of a sudden doesn’t have the same appeal as going to work each day.
What’s in an Exit Plan
So a good exit plan for a business owner as its first priority is to make a clear strategy about what the business owner will do once they sell their business or what they going to move.
The next ingredient is to make sure a good team is in place to advise, guide and protect the sale of the business. The team can include an accountant, business attorney, financial planner, lender and a business broker to market and handle all buyer inquiries about the business. The most important ingredient to the business owner is trust. If the business owner does not have a trusting relationship with any of the people on their team, they need to replace them.
Each business owner will have a different risk tolerance to different aspects of the transaction. Many transactions only close if the seller agrees to provide some of the finance to close the transaction. Third party lenders can bridge the gap between the buyer down payment and the seller note, but the seller has to be willing to be in a second position on the loan.
Each exit plan will differ for each business owner. My golden rule is that when selling your business, put your feet in the shoes of the other party and see things from their perspective. This is especially true for the buyer who has no history of the business, put down a sum of money they may never see again, take the emotional risk of not only being good enough to own and operate the business as well as the current owner, but learn as much as possible as quickly as possible or suffer the embarrassment of it all crashing down on them.
Are you thinking about selling your business and move to your next challenge? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.
For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.