Topics and Events

Exit Planning is a Complex Decision and a Complex Transaction ~ How to master both for a successful result

When considering an exit from your privately-held business, there are a number of obstacles that can get in the way of success.  It is easiest to view your business exit in two (2) distinct parts – first, an exit is a very complex decision.  Then, once a decision has been made, the actual exit is a complex transaction.  By understanding the nature of both the decision and the transaction, you are empowered towards a more successful business exit.  Let’s begin with the decision as a process, not an event. A Complex Decision Exiting is a Process, Not an Event Let’s compare your business exit to the sale of a home – which many owners can relate to as the largest financial transaction they have experienced to date.  A sale of a home is more of an event than a process. Many home sales will include a mini process of painting the house and making a few repairs that would obviously increase the value and make the sale easier. Home sellers may have even experienced a bit of ‘seller remorse’ as they move away from the home that held many memories. However, in all likelihood, the seller was moving into a new home that would better suit the needs for the next stage in their life. In any event, the financial and emotional impact on the sale of the home was likely more event-driven than process driven. A business exit is the opposite. A business exit needs to be viewed as a process, and a complex process at that.  The first part of this process is clarifying your goals and...

What ‘Exit Value’ Are You Receiving?

When owners think about an exit from their business, they often will hire an appraiser to give them a ‘value’ for their company.  Also, a well-written exit plan will include certain values for your company that you can use for your overall planning.  This newsletter asks a simple question for owners to consider when having their company appraised, namely, ‘do you know which ‘exit value’ you are receiving?’.  There are a number of different types and standards of value that appraisers use and this newsletter is written to educate owners on what to look for when they request an ‘exit value’ for their privately-held company. Not All Values Are Created Equally, Opinions versus Estimates – Valuations versus Calculations According to the American Institute of Certified Public Accountants (AICPA), there are two types of engagements to estimate value — a valuation engagement and a calculation engagement. The valuation engagement results in a “conclusion of value”, while the calculation engagement results in a “calculated value”.  The key distinctions between the two types of engagements are as follows: A valuation engagement requires more procedures and steps than does the calculation engagement. In a valuation engagement, the appraiser is free to apply the valuation approaches and methods he or she deems appropriate in the circumstances. In a calculation engagement, the appraiser and the client agree on the valuation approaches and methods the appraiser will use as well as the extent of procedures the appraiser will perform in the process of calculating the value of the subject interest. In a valuation engagement, the appraiser must correlate and reconcile the results obtained under the different...

Can I Afford to Exit My Business Today? Five (5) Questions to Begin Planning Your Exit

An exit from a privately-held business is a complex decision.  Each exiting owner will have a unique relationship with their company as well as their community, family, employees, managers, vendors, customers, and others who are tied to that successful business.  However, there are a common set of factors that every owner will need to answer before successfully exiting their business.  Every owner first needs to know whether or not they can afford to exit their business.  This newsletter will provide you with five (5) questions that, answered in order, will assist you in addressing this very question and getting your exit planning started today. The Five (5) Questions that Need to be Answered Here are the five (5) questions that every owner needs to answer to give serious consideration to their business exit: What do I need to get out of this business to meet my personal, financial goals? What is my business worth today? When can I expect to get paid that value? What will be the tax implications – or, put another way – ‘How much will I keep from those payments? Will the ‘net amount’ that I keep provide enough of a stream of income to meet my personal financial goals? Owners who can answer these five (5) questions are well on their way to establishing a strong foundation for the development of a comprehensive plan for their exit from their business.  Let’s take a look at each one of these to provide you with a little more guidance for your planning. 1. What do I need to get out of this business to meet my...

Developing Your Exit Vision ~ Becoming an Exiting Visionary

Eric Hoffer once wrote:  “The leader has to be practical and a realist, yet must talk the language of the visionary and the idealist.”  This newsletter examines an important fine-point with this statement – that the exiting leader must not only ‘talk the language of the visionary’, they must also think in terms of an ‘exit vision’.  So much is written on the management and leadership of businesses while so little is written on exit visions.  Doesn’t it make sense that a vision for a business includes what will happen when the CEO is no longer in charge?  Well for your privately-held business, developing an exit vision and becoming an exiting visionary is critical to achieving your business and personal goals. Lifestyle vs. Investment The first limiting factor for the owners of many private businesses is their limited view of the business as providing only a job and a lifestyle for them.  Owners who view their business as paying for their lifestyle will struggle with their exit vision because they can only see as far as the ‘bare necessities’.  In other words, the objective of the business is not to fulfill a particular business vision.  Rather, it is to provide a certain type of lifestyle to the owner while also taking care of the employees, customers, etc . . . In this limited vision, the owner is only executing on a strategy to provide beyond the minimum.  And, as a result of this limited vision, the owner does not ask ‘how big (and profitable) can this business be?’  Moreover, owners fail to ask ‘how big can this business be without me?’. ...

How Much of Your ‘Future Story’ will You Sell with Your Exit?

Every business has a story. The story is usually the original idea or set of ideas that were pursued when a business began and grew. Then it was the marketplace acceptance of those ideas, evidenced by the exchange of money, which helped your business prosper. And then it was the systems, people, procedures, and the reputation that you developed which helped you expand that idea into other related ideas that your customers / clients purchased to make your privately-held business what it is today. However, how much of your ‘future story’ will you sell to the new owner of your business? Or, more appropriately asked, how much of the future story will your future owner believe and be willing to pay you for? Business Sales are Predicated on the Future Potential, Not the Story of the Past Whoever is going to own your business after you will be interested not so much in the past performance, but mostly in the future potential of the business. The past may or may not be a strong predictor of the future performance of your business. For example, if you are in a position of gaining new market-share and attracting new clients with new products, services and ideas, then your future may look brighter than your past. It is reasonable, given that you are demonstrating a trend of future performance that your new owner will pay for a portion of this future because they can actually see that the marketplace is accepting your new ideas. However, many owners do not subscribe to this philosophy. In fact, many owners believe that the new owner of...

Owner Beware – Don’t Check Out Too Early

Business owners who know that focus is key to their success often do not rely upon this basic premise when structuring their exit plans.  Both during the exit planning phase as well as the execution phase, it is critical to not ‘check out too early’. Now, admittedly it is natural to let your mind wander when you approach a certain milestone in life. This happens quite often to business owners. They can get tired of the endless grind of running a business and having it weigh on their mind without end. They may have lost the passion and enthusiasm for it that once consumed them.  Further, it is not unusual to find business owners lost in the past, recalling earlier, perhaps more exciting or profitable periods in their business. Or they may find themselves completely detached from the business and essentially thinking of all of the other things they want to do with their lives; traveling, spending time with their family, pursuing other interests and hobbies. The problem is that all of these are symptoms of checking out too early which can be detrimental to your exit.  The Importance of being “Checked In” Arguably the most important aspect of the exit planning process is an honest conversation a business owner should have with themselves about their personal and business goals. This conversation brings the owner back to the present and creates a deeper understanding of what really drives their decisions and their actions.  Without this type of honest, ‘internal’ conversation, owners are too often left adrift with a solid plan for an exit and being to check out too...

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