Rich Gunn, certified exit planning consultant and partner in an accounting and consulting firm BPMalso offers value-oriented business planning.
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How do you define success? Success can be a very personal thing and defined in many ways. As an exit planning consultant, I suggest business owners consider these two areas when defining success from a business and financial perspective:
1. Make sure your business is ready to sell at all times.
This means that you have examined your business from the customer’s perspective and taken the necessary steps to optimize business value.
2. Make sure you are personally ready to leave your job.
This means that you know the current value of the business and are confident that this value will be sufficient to meet your lifestyle. You have made a plan and have no doubt that your financial resources will be sufficient for your life.
Your ultimate success in this endeavor will require a strong team of advisors to assist you in areas outside of your expertise. Many business owners underestimated the business because they were afraid to spend money on consultants. This is a stupid idea. The right team of advisors can bring more value and a higher sale price when you leave your business. It will also bring you peace of mind.
The following are some examples of key advisors you should have on your exit planning advisory team.
Lawyers: Don’t believe that one lawyer can “do it all”.
- If your business relies heavily on intellectual property, you want to make sure your IP is protected at home and abroad. Think about your trademarks, trade names, domain names, patents, processes, formulas and other IP. An intellectual property attorney can make sure that you have maximum protection for that property if it is a key aspect of your business.
- Contracts are a key element in protecting business relationships. You should have contracts with your key customers, suppliers, landlords, tenants, business partners and anyone whose relationship is critical to your business operations and profitability. A business lawyer should examine all of your contracts and ensure that they adequately protect your business, lock in key relationships, offer favorable terms from the buyer’s perspective, and are transferable to the buyer when you sell your business.
- A transaction lawyer should advise you on the legal issues that would be of concern to the buyer so that any problem areas can be resolved long before you consider selling.
- On the personal side, you should complete and update your estate plan every few years. You want to make sure your loved ones are well protected if you die too soon.
Authorized public accountants: The taxman alone is not enough.
- You need a CPA who can do more than prepare tax returns.
- Engage your CPA to review your financial statements at least once a year, with the goal of preparing your business for sale, and include any accounting adjustments the buyer will make. For example, if your books are kept on the “cash basis” method of accounting, consider switching to the “accrual basis” method of accounting because that’s what sophisticated buyers want to see.
- If you don’t maintain a three-year forecast, ask your CPA to help you do this and update it once a year.
- A CPA can be hired to examine accounting and tax issues that buyers will identify as “problem areas” so that you can address them long before you consider selling your business.
Value Advisors: This is one of the most overlooked areas by business owners.
- A business valuer is a key advisor. Never believe that you know your company’s value based on your own intuition or rules; neither is a reliable benchmark. A business valuation expert will use the same sophisticated methods that a buyer will use to value your company. Furthermore, they have access to transactional databases of companies that have recently sold in your industry. Business value does not stagnate. Obtaining a business valuation is essential, and updating it every one or two years is essential for a business owner who wants to know the true market value of their business.
- A Certified Exit Planning Advisor (CEPA) is a key member of your advisory team. While a valuation expert will tell you what your business is worth today, CEPA will provide you with a plan to increase the value. This will include specific steps to take that will improve the value of your business. It is not enough to know the value. You also need to know what to do to improve value.
Financial planner: You need it now if you don’t already have it.
- Don’t confuse a wealth manager with a financial planner. A wealth manager’s job is to maximize the value of your liquid assets. A financial planner’s job is forward-looking: they’ll help you determine whether you’re on track to reach your financial goals based on the value of your business and other assets, and how to plan accordingly if you’re not on track to reach your financial goals.
- A financial planner will help you determine what the exit value (sale price) of your business needs to be in order for your wealth, upon sale, to meet your retirement goals and last for the rest of your life.
These are just some of the advisors you should have on your advisory team to help you plan a successful business exit. Each situation is different and may require additional advisors.
The takeaway from this is that you want to start your exit planning advisory team now – well before you plan to close your business. This will give you and your advisors enough time to create an exit plan and execute that plan. The plan should give you confidence that you can exit your business at the highest price at any time, and your financial assets will be sufficient to meet your goals and last a lifetime.
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