Did you know less than 40% of small businesses listed for sale, actually sell?
I know, scary! While the reasons vary, the main reason is that business owners do not have an action plan in place to sell their business.
When should a business owner start their exit plan?
The Vant Group recommends that the business owner start the exit planning process as soon as the business is established or acquired. Unfortunately, business owners do not think about exit planning until they experience a health scare or fatigue and then there is not enough time to incorporate systems and processes to maximize the business’s value. Many business owners invest time and resources into their business for years and are unable to monetize their investment, which is most often 80-90% of their net worth.
What are the best tips for a successful exit plan?
1) Set goals
It is very important for a business owner to develop an exit plan. The plan should be very detailed and address questions like:
(a) What age do I want to retire?
(b) How much do I need for retirement?
(c) Do I want to sell the business to my family or an unrelated third-party?
2) Obtain a business valuation
After the plan development, the next step is to assess the value of your company in today’s dollars. Assuming you have been in business for three (3) years or longer, it is necessary to obtain a business valuation from a qualified valuation person (business brokers and investments bankers are both good options).
3) Develop an action plan
At this step, identifying the obstacles or issues that decrease the value of your business and create an action plan to correct them.
The biggest issue TVG sees in small businesses is when business owners do not work “on” their business, instead, they work “in” their business. It is important to add the value of developed human capital to your business, giving employees the latitude of making decisions.
Business owners tend to depend on a few customers. It is easier to maintain and penetrate a few relationships than to manage a lot of different relationships. Unfortunately, your business value decreases when one customer represents more than 10% of the revenue.
Business owners must keep clean books and accurate records.
4) Assemble a deal team
It is important to develop a high-caliber team with the actual members of the team dependent on the business owner’s situation. The members of the team should be an attorney that understands business transfers, a CPA, and a merger and acquisition (M&A) intermediary – also known as a business broker or investment banker. Having a team around you will greatly increase your success and allow you to focus on running the business.
In the Forbes article, Study Shows Why Many Business Owners Can’t Sell When They Want To, you will learn why selling a business is such a complex endeavor and some key ways to create a plan to increase the value of your business.
Need an action plan? Arm your business with The Vant Group, a team of senior investment banking professionals with a record success rate of completed transactions across a range of industries. Specializing in providing merger & acquisition services for both sell-side and buy-side clients, TVG supports the client’s objective with expertise and professionalism in every engagement.