Management Perspectives

Are you wishing to sell your business to fund your retirement? A stunning 83 per cent of business owners have no written exit plan, according to the Exit Planning Institute. As a result, the vast majority of privately held businesses that are taken to market do not sell, and the 75 per cent of owners who do sell regret it within one year. The wave of baby boomers looking to retire is accelerating at a rapid clip, so these statistics are alarming.

Business owners pour their capital, expertise, and sweat equity over the course of many years, sometimes decades, into growing their business, and they deserve a lucrative exit at the end of their journey. But the majority will fail to sell these businesses and realise great wealth.

What keeps a business from selling?

There are many reasons why a business does not attract a buyer or why a deal is not closed, but they all point to one massive failure: the absence of a proper exit planning.

Exit planning forces owners to confront three universal questions that establish their business, personal, and financial goals:
1. Who do I transfer the business to? (Business goal)
2. What happens next in my life? (Personal goal)
3. How much money do I need to go on to my next chapter? (Financial goal)

These are big, hairy, and sometimes scary questions. So, instead of searching for the answers, a typical owner buries his or her head in the sand and ignores the inevitable until it is too late. Then the owner is forced to exit or have an offer on the table and, with no way to evaluate it, ends up behind the proverbial eight ball.

Without proper planning, all business owners risk:

• Misunderstanding the liquidity options that can fulfil their goals;
• Not understanding the value of the business and leaving money on the table in a sale;
• A business that is not optimised and unable to attract a buyer;
• Miscalculating their post-ownership financial needs;
• Underestimating the personal impact of transitioning out of the business, fuelling regret;
• Paying too much tax on the transaction;
• Losing control of the exit process.

The only way to exit a business from a position of control and clarity, resulting in a successful sale and a satisfying post-ownership life, is to properly plan by creating a Master Exit Plan.

What does a Master Exit Plan (MEP) include?

An MEP is a comprehensive step-by-step guide that provides business owners with the information needed to take decisive action and prepare for the business’ eventual sale. It recognises the interrelationship between the owner’s business, personal, and financial planning.

When executed successfully, your MEP will enable you to not only exit via a sale to a third party, but also transition into the post-ownership phase of your life with ease and confidence, knowing that your wealth will be protected for future generations. Creating an MEP encompasses the following steps:

Identify your business, personal, and financial goals.
Establishing the goals that will fulfil your legacy will be the foundation of your exit plan. The business goals will help you assess all stakeholder objectives and identify the optimal sale structure of your business. Outlining your personal goals will provide you with a vision for your post-ownership future and insight into your future financial needs.

Understand your business value.
A qualitative and quantitative analysis of your business will establish a value range for mergers and acquisitions purposes. This valuation will provide you with an understanding of the marketability of your business and its potential transaction value.

Assess your risk and identify optimisation opportunities.
The valuation process includes analysing eight primary value drivers, which uncover any weaknesses that can be improved upon to increase the transferable value and marketability of your business— increasing your chance of success when you try to sell.

Create a personal financial plan.
A personal financial plan integrates the potential investable proceeds from the sale of your business and reveals if your financial goals can be met by going to market today, or if you should continue building the business to a higher value and sell later.

Establish and execute your exit strategy.
With an understanding of the business value and its potential liquidity, net of fees, and taxes, integrated into your financial plan, you will be able to devise a strategy for when you will go to market and the potential structure of the deal.

Review your estate plan.
The final step, an estate plan review, identifies strategies to protect your family’s financial security and future legacy.
Your MEP will serve as an action plan that, when executed, will ensure that your business is well-positioned to be successfully sold so that you can confidently transition into the next chapter of your life with no regrets.