Tuesday, 22 January 2013

No Stinking Plan?

Without an Exit Plan, business owners could end up with a “Value Gap”.

Most retiring business owners expect that their financial needs will be met when they sell their companies. Unfortunately, that is not always the case!

Business owners should have a business valuation performed by an independent professional and then create an “Exit Plan” to close the value gap if one exits.

A well designed Exit Plan should achieve the following objectives:

·         The price you want – If the business’s current financial picture doesn’t match the owners expectations, one or the other has to be adjusted. Unfortunately, many businesses sell for a lot less than the owner wants or needs. Positioning your business for as sale in 3-5 years will allow you the time to properly execute the plans necessary to build value.

·         A successful closing – It’s unfortunate but in the world of business transactions, many business sales do not close. The reasons for failed transactions are countless such as mistrust, miscommunication, due diligence, overzealous advisors or simply a buyer or seller dislike for one another. The best way to avoid these hazards, and many of the others standing in the way of a fast and reliable close, is to become a highly valuable acquisition opportunity for buyers.

·         Produce multiple buyers - Don’t fall into the trap of focusing all your efforts on a single potential acquirer for your business—no matter how attractive they may seem.  Attracting a variety of buyers to a business acquisition is at the heart of maximizing value. If a buyer knows he is the sole interested party, he can control negotiations. But when there are a number of interested parties, the sale process remains in the seller's control—which drives the price up.

·         Protect legacy and loyalty – It’s usually not just about the money. A buyer who is a good cultural fit, one who will protect the jobs of key employees, provide key employees career building opportunities, and have similar values are just of few things that owners consider when selling their business.  By strategically positioning your business for sale you can effectively choose the best fit, which may not be the highest offer.

The rewards are high when you plan in advance.  With an effective plan business owners will dramatically improve the likelihood of future success for the business.  Plus, planning helps protect owners from the things they don’t expect and preserves personal wealth, estate and the business before a transfer is made. Building an exit plan should begin the day you start your business, however, it’s never too late to start! 

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a Business Broker with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.


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