SBCA

Exit Planning

Do You Have an Exit Plan for Your Business?

What is your exit plan? Business owners who invest in mentoring, teaching and empowering their employees will build value in their companies, and will find more time to do what is really important.

Private Equity Groups will not enter into a business venture unless they have an exit plan. Business owners need to do the same.


“This Strategic Planning and Coaching session was very timely for our organization. You led us to address key issues and to create ideas and actions to resolve them. You prepared me in advance for the constructive criticism that would come from my employees. You were especially effective in drawing out ideas from my employees in my presence, who may have otherwise been intimidated and reluctant to volunteer constructive criticism. I would highly recommend you to other Presidents, CEO’s and Business Owners.” John, President Manufacturing Company

The Outlook for Small Businesses

Over the next ten to fifteen years, the U.S. economy will experience an unprecedented rise in the number of businesses for sale as a result of baby boomer entrepreneurs retiring. Estimates range from fifty to seventy percent of all small business owners will exit their business! The result will be a huge supply of available businesses and a resulting downward price pressure for most privately owned companies.

The baby boomer generation has been one of the most entrepreneurial generations in the history of America.  During the last 30 years over 5 million businesses with annual revenues ranging from $1 million to $75 million were founded. The owners of most of these businesses are now 50 years old or older and beginning to think about retirement.

More Supply Equals Lower Selling Price

For those business owners who intend to sell to a third-party, it will become increasingly important that they position their business to sell successfully in an increasingly competitive market.  With 50% to 75% of business owners looking to sell, there will be more businesses for sale than buyers.  Now, more than ever, it will be crucial that business owners focus on doing everything he or she can to increase the attractiveness, value, and marketability of their businesses.

Unfortunately, a PricewaterhouseCoopers study showed that approximately 75% of private business owners have no Exit Plan in place.  25% of all business owners have done little or no estate planning.  For a soon-to-be retiring business owner, this is a recipe for disaster.
What is an Exit Plan?
An exit plan is a comprehensive, fully-integrated plan that asks and answers all of the personal, business, legal, financial, tax and estate issues that are involved in exiting from a business.  This planning process guides business owners to begin positioning themselves and their businesses so that the owners accomplish their personal, financial and business goals when they exit.
Given the number of companies that will soon be on the market, business owners need to focus on improving profits along with building a management team that will stay when the business sells.  The owners need to grow top line revenues in order to make their companies more attractive and to maximize the proceeds they receive at the time of their exit.
Exit planning delivers tangible results for savvy business owners.  It is typical for companies that have invested the time and effort to prepare themselves for sale to experience a substantial return on their investment. These companies sell for a significant premium over companies that come to the market unprepared. In addition, business owners are often able to reduce or in some cases eliminate the capital gains taxes. This often dramatically increases the after-tax net proceeds.
Perhaps the most important benefit of Exit Planning is the peace of mind that comes when a business owner knows that he or she is being proactive and taking charge of the future. This way the owner can take care of family and business because of wise stewardship. Deciding how and when to exit a privately owned business is perhaps the single most important financial and personal decision in a business owner’s life.
Why Should Owners Begin Planning Now?
The oldest of the baby boomers was born in 1945 and is now 65 years old and the youngest is now 49.
As of last year the number of business owners wanting to sell increased by five times over 2004. This trend will continue for the next 10 to 15 years.
Selling your business during the first half of the “baby boomer bubble” (2010- 2015) will provide the best chance of maximizing its value because the younger baby boomers who are retiring from corporate jobs will be active buyers. In the later half of the baby boomer bubble these new entrepreneurs will also be looking to exit. The economy is recovering and we are entering a strong economic cycle which creates a good environment in which to sell.
It takes approximately 2 years of focused activity to get your business ready to sell at a reasonable price. We are currently experiencing the lowest capital gains tax rates in the last 60 years.  These rates will increase from 15 to 20 percent at the end of 2010, and no one would be surprised if our government increased capital gains again in the near future.
To get started on the exit planning process as well as the exit process, get informed. Seek information from the best independent and objective sources possible. One good place to start is to talk with trusted advisors like your attorney, accountant, business coach, or financial advisor who focuses on privately held businesses. If you do not have strong cash flows, find cash flow solutions. Employ sound marketing strategies and ensure that solid business growth is occurring.

“Individuals play the game, but teams beat the odds.” -SEAL Team Saying


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