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Planning Your Business Exit in 9 Steps
by Colleen Kowalski on February 27, 2023
The following article was provided by EPI Partner, Maus
Selling a business is a major milestone in the life of an entrepreneur. Your last day as the owner is as emotional as your first but for very different reasons. To ensure the sale is a success, consider the following 9 steps to planning your business exit.
9 Steps to Planning Your Business Exit
Your business exit seems daunting now, but with a bit of planning, the process becomes clear.
Step One: Business Overview
The starting point in planning your business exit is gaining a preliminary understanding of your business. Always make sure you can highlight in one page what your business does and what makes you stand out from the crowd. That includes creating a business description, setting high-level goals, and establishing your preliminary exit planning views.
Step Two: Business Readiness Assessment
Make sure your business is ready to sell or transfer to new owners. The more you get this right, the more your business will be worth. For example, taking the time to examine your strengths and weaknesses provides valuable information. Do this with the completion of a Business Attractiveness Questionnaire and Exit Readiness Questionnaire. Upon completion, calculate your score as a benchmark of where you are at the moment. This shows the gaps in your business and helps produce an action plan.
Step Three: Personal Readiness Assessment
What is the point of building a great business, creating maximum value, and selling at the right time, but then paying too much in government taxes? With proper tax planning, you may be able to access tax breaks, provisions, and structures, which help you to legally reduce your tax obligations. In addition, business owners should review their wealth management strategies both pre and post-exit. Focusing on your welfare (health and well-being) as you grow the business is as important as ensuring you have a well-thought-through ‘life after exit’ plan. Then, look at how this impacts your Estate Plan and your desire to provide for your family in case of death or a serious accident. There is a lot to consider!
Step Four: Business Value Assessment
A good starting point when preparing an exit plan is to understand how much your business is worth. This could be a formal or informal valuation. You may wish to seek advice from a qualified professional business valuer.
Even on an informal basis, you could get an idea of the value of your business by reviewing businesses in your industry that have sold. Look at the multiple of profit (EBITDA) and research the range of multiples that they were sold. To determine where you sit in this range, review your Business Attractiveness and Exit Readiness Scores. The higher your scores the closer to the top end of the range and the higher your likely business value. This module will also review your detailed budget forecast, profit plus add-backs, and industry benchmarks for your profitability.
Step Five: Exit Options Review
During the assessment phase, we discussed your timing and your exit options. This section provides more detail on your options and what is important when considering your timing. You should consider the need to align business, personal, and market time frames into a one-page strategy. You then need to understand the 10 basic exit options and the difference between an internal transfer and an external transfer.
Everything before this section has been establishing where you are now and what you could do both from a personal and a business value and readiness perspective. In this section, you will create action plans to implement your strategies to close some of the gaps you have identified.
Step Six: Exit Plan Gaps & Recommendations
Review the assessments and create action plans for business value improvements, business and marketing plans, exit readiness plans as well as estate planning, personal wealth, wellness, and ‘life after exit’ plans.
Step Seven: Educated Exit Planning Goals
The more progressive and educated you become in each area of the exit and succession planning process, the better the decisions you make to ensure a successful exit. Once you step through your action plans and receive advice from professional advisors, you may need to review, redefine and modify your goals and objectives.
You should aim to set clear objectives for when and how you wish to exit the business, to whom you would like to sell the business, and how much you would like the business to be worth. Your exit goals will also include your personal wealth, personal wellness, and ‘life after exit’ objectives. These goals are just as important as your business value objectives.
Step Eight: Exit Plan Implementation
You should now be clear about where you are headed. You have identified your gaps and developed a starting series of actions. What you need to do now is look at the big picture. Review your resources, timing, and personnel constraints and implement an action plan.
Step Nine: Monthly Review
Each month, you need to review three things. Your business performance results, your business action plans, and your exit action plans. We strongly recommend you have a formal end-of-month meeting with your nominated Advisory Board or Business Advisor. This meeting could include a combination of business advisors, mentors, key staff, and family members. The # 1 reason for CEO failure is lack of strategy execution. A scheduled monthly meeting will hold you and your team accountable.
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