Planning your business exit – what you need to know

Whether you’re considering selling or transferring your business, you should begin to plan your transaction at least two years before you think you want to do so. But how do you go about it? Here are a few things you should consider:

Firstly, you need to ask yourself what your goals are. Where do you want to be in a few years time? Do you want to remain involved with the everyday running of your business, or do you want to start another one? Maybe you’re ready to redirect your energies towards a good cause or enjoying a well-earned retirement.

What are the goals of other stakeholders that you may have? If you’re thinking about selling your business, are you the sole owner? If not, what do your partners think? Can you see potential conflicts down the road?

If you’re planning to transfer your business to a family member, do you have reservations regarding whether that family member is ready to succeed you in taking over and running the business? What about other family members — how will they react to your decision? Is there anything you can do to provide them with an equally significant legacy?

Other stakeholders whose interests need to be taken into account include employees, key customers and suppliers.

If you have been actively involved in your business and the relationships you have formed with the stakeholders are the foundation of your business, it is important to present and time the communication of your planned transition in the right way.

The key is to start thinking about these issues sooner rather than later while there is still enough time to prepare. This may even allow you to discover options you didn’t even realise were available.

What is Pre-Planning and what does it involve?

Conduct a Market Analysis

Commission your trusted adviser to conduct an analysis of the market environment, so you can determine:

• What buyers are looking for in an acquisition target
• The potential buyers, and their appetite for buying
• What valuations are reasonable, and
• What you can do to maximise your business’ valuation potential.

Consider and Evaluate Various Exit Strategies

Your adviser should develop alternative strategies for you to consider — other than simply selling your business to a potential buyer. Many business owners have made their successful exit through a sale to an employee stock ownership plan (ESOP) or a private equity group, and others have unlocked liquidity through a re-capitalisation of the business. If you explore various options, each of which has its own pros and cons, you can sometimes expand your pool of potential buyers or investors and realise greater value from your transaction.

Assess Your Company’s Attractiveness

If you were selling your home, you would do whatever you could to enhance its “curb appeal.” The same goes for your business. Talk to your advisers to prepare your company for sale and identify issues for a potential buyer by asking:

• Who are your key customers, and do you have contracts with them?
• What about key suppliers and contractors? Are they under contract?
• Speaking of contracts, do they all contain change of control provisions?
• Have you done what you can to keep key employees? Do you have key-person insurance in place?
Are your financials audited?
• Have you documented your business processes? Are they efficient?
• What threats does your business face? What are you doing to manage these?
• What are your business’s top strategic priorities and are they in-line with what buyers might want?
• From now on, running your business should focus on what you can do to make it more attractive to potential buyers — which is probably a shift in focus from your current status quo.

Review Your Financial and Estate Plans

Don’t wait until negotiations have started to realise that you should have updated your financial plan. Take the time now to consult with your CPA, lawyer and financial advisor regarding how much you will need to achieve your retirement goals, start a new business or pursue whatever it is you plan to do once you’ve made your exit.

You should also take this opportunity to review estate planning issues beyond your will with your estate lawyer. Update the way your personal and/or business assets are titled, if necessary—and remember that it may take significant time to implement the complex strategies used to transfer assets and minimise your tax liability.

Once you have followed these steps you should be much better prepared to sell or transfer your business.

Don’t forget, it is worthwhile to have an expert on your team when it comes to one of the most important transactions of your life!

Ascend Business Partners are experts in helping business owners build their business and supporting them during the sale, exit or transition process. Our Managing Partner, Greg Johnson, is a Certified Practicing Accountant, Certified Exit Planner and Business Broker. Our focus is on creating exceptional personal and business outcomes for business owners by assisting our clients to plan, design and implement their ultimate exit and succession strategy.

Contact Ascend Business Partners today on 03 8794 7777 or ascend@ascendpartners.com.au to have a discussion about your business and financial goals. Or simply book a free 1-hour “Time to REFIRE” workshop with Greg!