According to the Business Enterprise Institute, 81% of business owners say they are hoping to stop working within the next ten years. As the pandemic continues to impact commerce worldwide, many owners have a desire to speed up that timeline. While we know that our lives will eventually get back to some semblance of normal, more and more owners may be contemplating retirement as they deal with the impact of drastic changes to the marketplace.
Regardless of whether COVID has you considering an early retirement, the fact remains: all business owners must exit at one time or another. Having a plan in place is crucial, whether you’re thinking of selling immediately or down the road. An exit strategy devised with the input of an advisor can make all the difference between simply liquidating the company to “get out” or earning the maximum possible sales price to support your retirement dreams.
Step 1: Set Objectives
The first step in formulating a plan is to define your objectives. The three primary objectives include, how much time you have to begin and conclude your transition, to whom you plan to transition your business, and how much you need from the sale of your business to retire as you would like. It is important to have sufficient time to transition what it is you do in the business and what you know. Having time on your side may be instrumental in building your management team and/or increase cash flow. If leaving a legacy is important to you, you might consider selling to key employees/management team, family members, or to an ESOP. If maximizing sales price is of primary importance to you, a sale to a 3rd party may be for you. Consider the retirement lifestyle you want and then determine how much cash will be needed to sustain it.
Step 2: Determine Value
The next step is to determine what you have toward your retirement goal. Do you know what your company is worth today? If you need help, a business valuation advisor can do the research needed to help you assess the various components of your organization and determine its total market value after taxes. If a gap exists between what it is you need and what it is you have, you will then need to identify value drivers that can be improved upon to increase the value of your business during the period prior to your departure.
Short-Term Value Drivers
The majority of buyers actively seek out businesses that can grow with nothing more than additional financial support. Typically, if a buyer is willing to acquire a company that isn’t a turnkey operation, they will not do so without the owner’s continued involvement (which may impact the timing of your exit plan).
Adding value to your company will make your business more appealing and increase the asking price. Think about incorporating value drivers which aren’t dependent on you personally:
- Stable management team
- Sustainable operating systems
- Diversified customer base
- Effective financial controls
- Stable or improving cash flow
- Recurring revenue streams
Value drivers increase your flexibility as a seller and ultimately increase the price tag of your company. It’s never too late to begin adding value to the company, whether you’re looking to sell now or in 5-10 years.
When you go on a journey, it helps to have a road map and an experienced guide. If exit planning seems overwhelming, you’re not alone. Many business owners struggle to formulate a strategy and execute it without assistance. MarksNelson can help you navigate the process with a team of experts by your side. Give us a call at (816) 743-7700 to begin planning an exit strategy that will help you achieve your ideal retirement lifestyle.