Profitable, well-managed privately held businesses sell for tens of millions or even hundreds of millions of dollars. So what steps should you follow to orchestrate a successful and profitable exit for yourself?
Here are some critical success factors for a cash-out event:
- A good process: A logical approach that considers all factors.
- A good match: A compatible fit between buyer and seller.
- A good deal: Appropriate terms and structure.
- A good exit: A well-thought-out implementation plan.
When entrepreneurs consider exit strategies, they tend to fixate on valuation. Although the value of the business is an important issue to consider, it is certainly not the most critical factor.
In 1947 Howard Hughes was quoted saying “A million dollars isn’t what it used to be.” In 1997 Ted Turner was quoted saying “A billion dollars isn’t what it used to be.”
No matter what your cash-out number is, it is most important to ensure you achieve your exit vision. Furthermore, you should have an exit vision before you begin the sale process.
We published “Exiting Strategies: The CEO’s Seven Critical Steps to Cashing Out of a Business, Managing and Preserving Wealth.” The beginning of 2007 is a great time to revisit them.
The right business exit strategy allows you to maximize the sale value of your business. A documented strategy is the best way to get the right buyer, get top dollar for your business, and ensure the right transition.
In our next few columns, we will walk you through the stages of a successful exit. This column will be dedicated to the first critical step: Develop your exit strategy.
Your exit strategy will allow you to consider your options and your personal goals and determine your timing and objectives. You can do this on your own, but we highly recommend you use a consultative exit strategy specialist. Check online or on our Web site for our article titled “Business owners need cutting edge wealth planning strategies.”
Here are the questions you need to consider:
- Why am I considering selling my business?
- what is the best time to sell the business?
- How is my business performing?
- What personal objectives would be achieved by selling my business?
- What type of professionals/advisers will I need, and who are they?
- Are they specialists in helping entrepreneurs of closely held businesses with cashing out?
- Who would be the ideal buyer?
- What are my strategic alternatives?
- What is the profile of my customer base?
- What synergy would I look for in a prospective buyer?
- What is my time frame for completing the sale process?
- How much do I need to net from my business sale to achieve my financial goals?
- Do I need a specific cash amount, or am I open to terms?
- What will buyers regard as strengths and weaknesses of my business?
- What is my commitment to this process?
We understand that it takes a very concerted effort, over years in some cases, to answer the above questions and to develop your exit strategies. That is why this is the first critical step of a successful exit.
When it comes down to it if you cannot achieve everything that is important to you from the exit, with a high level of confidence, then why are you selling? Your goal should be to exceed your expectations.
Apart from working with a financial advisor in Walnut Creek, there are certain steps you need to take to ensure a proper exit strategy.
Steps to a Proper Exit Strategy
Apart from answering the above questions, you need to take certain steps to plan a proper exit strategy. These steps include:
- Preparing Your Finances
You need to get your finances in order for you to develop an exit plan. That means involving an auditor and an account in your professional and personal finance accounts.
- Determining Your Options
After analyzing your finances and getting a clear picture, it’s time to consider the various exit strategies available. That will help determine your best exit strategy.
- Talk to Your investors
If you were working with investors, you need to share with them your intent to exit the business. Come up with a strategy that shows the investors how they’ll be repaid after the exit.
- Create New Leadership
When exiting, you need to have a team of professionals who will help you finalize your plans. At this point, you need to vet and settle for different professionals.
- Speak to Your Employees
Your employees need to know about your succession plans. They’ll have questions to ask, be prepared to answer them.
Exiting a business that you’ve nurtured over the years can be overwhelming and emotional. That’s why you need to come up with a proper exit strategy.
We have been party to many exits, and it seems there are lessons to be learned from every one of them. Just as with any well-run business, an exit strategy will take on a life of its own when all the key players know the end vision. As the CEO of your exit strategy, you have to be the visionary. Granted, you probably do not understand the legal, tax, and financial aspects of how to make it happen, but that is perfectly OK, as long as you handle step No. 2 properly.
In closing, the cashing out of a business is typically the biggest financial event of your life, and chances are you have devoted much time away from your family to make your business what it is today. Invest time upfront to ensure you achieve everything you wish to after the sale. There is no turning back once the deal is closed.