exit planning

Planning Your Exit? Read This First

By Rocco Carriero, MBA, CRPC®

Exiting your business is often about a lot more than exiting your business. For one thing, it’s about helping you obtain maximum value at the time of sale. Comprehensive wealth-planning factors such as cash flow analysis, stock options, tax minimization, and retirement planning should be part of your exit plan. 

Where’s the Money? 

When most small- to mid-sized business owners begin to seriously consider selling their enterprise two major questions often enter their mind. One is about money. The other is about life. 

  • How will I replace my cash flow? 
  • How will I live my post-business life? 

What many business owners contemplating a sale of their business are actually saying is: How will I get maximum value for my business so I can live the next phase of my life?  The news is not always good for those who do not plan. Many have unrealistic expectations as to the actual value of their business on the open market and from where capital may come in order to make a sale happen. There almost certainly will be other issues when selling your business. 

According to a Pepperdine Private Capital Markets Report, investment banker respondents indicated that the top three reasons for deals not closing are: 

  • Valuation gap 
  • Unreasonable seller demands 
  • Insufficient cash flow.  

The report also indicates that there is often a “capital shortage” for companies with less than $10 million in EBITDA (earnings before interest, taxes, depreciation, and amortization).   

What You Can Do 

While exiting or preparing to exit your business can seem complicated and possibly overwhelming, it does not need to be. With proper planning, many business owners are able to get a premium for their business and enter the next stage of their life with confidence. According to a survey from the Exit Planning Institute (EPI) (www.exit-planning-institute.org), some issues those planning the sale of their business should consider include:  

  • Cash flow replacement 
  • Financial/retirement planning 
  • Career counseling, professional networking 
  • Legal and taxation issues.  

 Life changes – sometimes suddenly other times deliberately. How we react and prepare for change and whether we choose to work with a team of seasoned professionals or “go it alone” can often make a world of difference in your outcome. 

Your business success does not have to end when you retire or sell your company. Pre-sale planning, as well as liquidity and investment planning advice, can help you make the most from this transition. The successful sale of a business is about financially preparing for all aspects of your next life phase.

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