Smart Exit Planning

Date posted: September 12, 2017

By Chris Snider

One of the most challenging questions business owners face is when is the best time to sell their businesses. To help solve this dilemma The Exit Planning Institute™ (EPI), in collaboration with the University of San Francisco’s Gellert Family Business Resource Center and council of local business leaders, recently hosted the 2017 Bay Area Owners Forum. Chris Snider, author of Walking to Destiny and CEO of the Exit Planning Institute, kicked off the forum, talking about  the 11 actions business owners must take to become what he calls “value creators.” Snider’s challenge to business owners: Come up with one action during the day that would make a significant difference in your life and the life of your business.

Snider believes business owners need to change their paradigm of exit planning. “Exit planning is nothing more than good business strategy,” he says. “It is a strategic business tool that helps you drive more sales and income today, while positioning you and your business for a successful exit somewhere down the road, while guiding you into the best act of your life.”

The foundation of the forum’s education platform is the Value Acceleration Methodology which was created by the Exit Planning Institute to provide owners with a tool to help them identify, protect, build, harvest and manage intangible, as well as tangible, value.

One of the problems business owners have is that they don’t receive regular feedback on the value of 80 percent of their business value, which are the intangible assets. Snider explains, “80 percent of your net-worth is locked in your business and 80 percent of that is intangible assets. You may not even be looking at it on a regular basis—how can you manage it that way? Accounting systems don’t give you any feedback on that.”

As a guide, Snider suggests business owners start investing in value creation by earmarking 1 percent of the value of their businesses to invest in value acceleration projects. “We can all find 1 percent,” Snider says, “that’s a good place to start.”

Some questions Snider addressed during the meeting included:

What are the main reasons so many businesses fail to sell?

The number one reason many businesses fail to sell is owners tend to get cold feet when the moment approaches to sign over the business—even when the price is spectacular. As the moment of transfer gets closer, business owners often feel overwhelmed. If business owners have not prepared and are not excited about what comes after the sale, the emotion of separating themselves from their business is overwhelming.

How long does Value Acceleration take?

My partners and I once grew a business at a compound annual growth rate (CAGR) of nearly 40 percent over five years. After nearly five years, the business was five times the size it was when we  originally bought it. [And then] our thinking began to shift. We still wanted to continue to grow, but we started thinking more and more about exiting. We knew the business was attractive, but over the next two years, we dedicated time getting ourselves personally ready and the business ready. Overall, the process took about eight years.

What should you do if you only have one-three years to prepare for exit?

As I discussed this concept of the Value Maturity Index in my discussed in my  book, first you need to identify what you have—this is the first step, regardless of timing. You cannot protect and build what you don’t know you have. Once you know what you have and identified its potential, the next step is to protect it by implementing risk mitigating actions. Risk mitigating actions are the easiest, fastest and usually the least expensive actions you can take to add value while positioning the business to sell or transfer. If you do nothing else, mitigating risk will add value and often positon the business to be saleable or transferrable to family, employees or management.

To better prepare yourself, Snider says, remember these three key takeaways:

  1. Start your exit planning early to allow adequate time to do it right
  2. Using outside experts provides options, clarity and additional valuable points of view
  3. In addition to written business plans, having written personal and financial plans as well can be very helpful

Christopher M. Snider, CEPA CEO, is the Exit Planning Institute Managing Partner, Snider Premier Growth.

 

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