“If you sold your business today what would it be worth?“.

Chances are the number you have in your head and the number a buyer is willing to pay for your business are not the same. The means to bringing those two numbers closer together isn’t magic…it’s in long-term planning.

There once was a small successful manufacturing business.  Two siblings that owned the business wanted to develop a transition/exit plan for their company.  Their revenues were approximately $3M, they were profitable, and the future for the business was bright.    Their goal was to have a completed exit plan in place within two years.  The interesting point was they weren’t planning to sell the business for 10 years!  They planned to be involved in their company for at least 8 years after their succession/exit plan was in place. They measured their decisions against their transition/exit plan over the years and continued to grow their value and make good decisions until their recent sale.  A sale at a much higher value than they believe they could have achieved if they had run their business without a plan.

Although this approach certainly isn’t common, it is really smart.  Imagine the difference in the value of this manufacturing company compared to a business in a fire sale because the owners decided one day it was time to get out.

Sadly the fire sale scenario is much more common.  Most of the business brokers I’ve spoken with preach a similar message.    They would like to see a minimum of a 3 to 5 year window for planning.  More often than not, by the time a business owner contacts them to “sell” they are thinking in terms of right now or as soon as possible, not a distant date years down the road.

Exit/Transition Planning is really just another way of saying long-term strategic planning.  At some point your business is going to go through an ownership transition.  Even if you keep it in the family, there is still a transition…and with a transition you need to have a plan if you want to get the maximum value for all your hard work.

Where to start? 

The first thing to keep in mind is that doing nothing (or putting it off) is not a good option.  One of the major reasons businesses don’t get sold is because they are more accurately a good paying job for the current owner rather than a business that can continue without them.  It is a lot harder to sell a job than it is to sell a business (and you won’t get nearly as much for it). Honestly assessing the state your business is in, getting an initial value for it and putting a plan together to address increasing that value over time is the best place to start.

Need some incentive?

If you think this sounds like it might fit your scenario, you’re not alone:

• 83% of the owners of privately held businesses have no written transition plan. (2013 State of Owners Readiness Survey sponsored by the Exit Planning Institute, PNC Bank, Grant Thornton and the Ohio Employee Ownership Center of Kent State University)
• 80% of all businesses under $50M that are put on the market do not sell.   (Tom West, President Business Brokerage Press)

Those are big numbers and it’s probably not a coincidence that they’re similar numbers.  How confident are you that your business will be part of the 20% that sell?  Without a written transition plan what are the odds that you’ll be able to get someone to pay you that price you have in your head?

To take some of the fear out of the idea of ‘Exit Planning’, think of it as a conscious and focused effort to grow your business value over time, doing it in a way that enables an efficient conversion of your ownership into personal financial freedom and peace of mind.  Bottom line…Exit Planning is a process, not an event.

It doesn’t have to be painful and it shouldn’t be put off until you’re ready to sell.  Make exit planning a part of your overall big picture strategy and enjoy the ride.

Need help getting started on your Exit/Transition Planning?  Call to set up an appointment 931-456-4910.  It can make a huge difference in the final value of your business.