It is estimated that somewhere between 7 and 20 trillion dollars of value in businesses will change hands in the next 10 - 20 years. All business owners will exit their businesses at some time. The question is not if but when and on whose terms? Now is a good time to review your "exit plan."
There are several good books for business owners and leaders seeking more information on exit plans. Consider John H. Brown’s How to Run Your Business so You Can Leave it In Style or Richard Jackim’s The 10 Trillion Dollar Opportunity. Each gives the business owner or leader an overview of how to plan for the opportunity to "monetize" the investment they have spent their life’s work on. Brown now heads the Business Enterprise Institute (BEI), a network of professionals who practice exit planning. Likewise, Jackim heads the Exit Planning Institute (EPI.) Much more information is available from their Web sites; BEI’s www.exitplanning.com and EPI’s, www.Exit-Planning-Institute.org.
A High Level Look
Let’s take a high level look to help you focus your efforts on those areas in your plan that need attention. Using part of the seven-step planning process suggested by Brown, assess your situation. Each step alone can span several articles: here are some key thoughts:
Know your primary objectives. Besides the date and manner of departure, how much money will the exit need to bring so that you can live in the manner to which you are, or would like to be, accustomed? This requires financial projections usually done by a professional.
Know what your business is worth. The sooner you know, the better you’ll be able to manage those "value drivers" that translate to the success of your plan. Consult with an advisor with a credential in business valuation. Explain the purpose of your inquiry and, if the figure is not what you had hoped for, pull in your team to develop a plan to assess the goal. The most common credentials include CVA (Certified Valuation Analyst), ASA (Accredited Senior Appraiser), CBA (Certified Business Appraiser) and ABV (Accredited in Business Valuation).
This requires that you know what drives or detracts from the value in your business. Don’t underestimate the value of a strong workforce in place, as well as the depth of the management team. Human capital, customers, innovation are just three factors that can drive a business’ potential to create value. Consider also, those factors that need to be diminished: is there such a thing as "bad profits?" Companies without sound financial reporting systems or who rely on ‘tricks" to make targets will find less favorable metrics. There is no substitute for critical external assessment. In need of financial systems advice? The AICPA, Dell and PC Magazine are offering a free online course, "Financial Management Made Easy - Solutions for Small Businesses," to teach small businesses with up to 25 employees how to automate and secure their finance processes.
Know the best way to sell your business. Depending on many factors,including industry, revenue and timing, you’ll want to know that you can maximize your "net" return. Business brokers tend to handle the smaller companies if a private transfer is not structured, but once your revenues exceed $10 million you’re probably going to want to consider a third-party intermediary. Learning how the sale process works is a lesson worth getting in advance.
Assure the security of your transfer if you are passing the business on to family or key employees. Many times the highest net is not based on the highest business value," but rather a combination of terms and having the right people at the right place. Often this becomes evident in the planning process. While many of our clients are planning a transfer in 2010, the year of a 0 percent estate tax, practically, you should consider other ways to minimize the tax bite. This is where the team attorney is important.
Know what is needed to assure that the business runs without you. If the exit is not under your direct control, do you have in place those methods that assure continuity and an orderly transfer? The buy-sell agreement you signed when the company was formed probably needs a check-up. Start with a "proforma’ of the buy-out formula today and consider how the transfer will be funded. Many businesses find the results are not what were envisioned. Know that you have provided for the businesses’ security in the event of death or disability.
If you have doubts about any of the above, you are not alone.
Assemble a complete planning team. The planning team typically is made of the CPA, attorney, investment advisor, insurance advisor and business valuation analyst . Ideally one or two of these professionals will drive the process and reworking of the plan as time passes and an actual transition is contemplated.
For many an owner, this is the biggest asset they own; for many a business this is the most important plan they’ll ever execute. Allow, in either case, the time and resources to put all the pieces in place for optimum results.
Written exclusively for w2wlink.com by Simone Velasquez-Hoover.
w2wlink Discussion and Thought Provoking Question from the author: 1. If the exit is not under your direct control, do you have in place those methods that assure continuity and an orderly transfer? 2. What kinds of methods would you use for a smooth transfer during the exit?
Simone, President of Simone Velasquez-Hoover, PA, for over 20 years, is a C.P.A. and FL Supreme Court Certified Family Mediator. Her experience in banking and as a CPA coupled with her communication skills allow her to lend a unique perspective on dispute resolution in cases that require finance and analytical skills. Mrs. Hoover has over 20 years of experience in financial, accounting and taxation issues. She has also served as an expert or mediator in cases dealing with contract disputes, shareholder rights, divorce and family matters. She received the AICPA Cetificate of Achievement in Business Valuation, 1996 and is a Certified Valuation Analyst. For more information contact: (561) 327-1209 or email@example.com.