Kerri, Author at This Way Out Group - Page 22 of 25

Set Your Exit Strategy From the Beginning

Begin With The End In Mind
Stephen Covey

There’s a lot to consider when you are starting a business. You need to be clear on your mission and vision, your business model, your market research, marketing and sales strategy; and your budget and operations to implement that business plan. It’s easy to get busy working in the business, making it a viable concern. That’s the fun and the immediate reward for your vision and effort.

Another critical piece that’s easy to put off but critical to your long term goals is your exit strategy. If you set your exit strategy as part of your initial goal setting then all your goal achievements will lead towards your ideal exit strategy. Here are six areas to explore to be sure you achieve your end goals.

You Can’t Go To School to Learn This Stuff

Schools just don’t teach this stuff, especially for private businesses. They focus on starting and running a strong profitable business, not how you’ll get out or how you’ll get your money out.

Most business owners only go through the exit experience once in a lifetime. They have no experience or hindsight to draw from to do this right.

There is only limited primary reference material available to teach CEOs how to plan and manage the business exit. The anecdotal lessons from CEOs’ personal exits reinforce the difficulties of exiting on your terms and on your timeline.

Comprehensive early exit strategy support is in short supply. Effectively executing your exit strategy requires collaborative teamwork from and with your expert advisors. You need to own the exit process as your top priority. An exit strategist can become your most trusted strategic advisor to achieve that end.

An entrepreneur who tries to continue running the company operationally and prepare the company for their profitable exit will do neither well. When you build an expert team, you can plan your exit to achieve your ultimate goal.

Selling For A Maximum Value

You want to sell your business for maximum value. Here are three solid guidelines to make that goal a reality.

Focus valuation discussions on the future potential of a business – not past performance

  • When you negotiate valuation with a potential buyer, it is essential to focus the discussions on the future cash flow potential of the business. A buyer will be more confident and engaged in investigating the purchase of your business when they can perform a business analysis and thoroughly understand the company’s financial performance.
  • To be effective in valuation negotiations, sellers will want to conduct rigorous industry research and analysis; develop defensible financial projections; and position both pro-forma financial and strategic benefits (including revenue and cost synergies) of the sale/acquisition/transition to a new owner.

Don’t leave money on the table by neglecting the intangible value of a business

  • At a minimum, expect a buyer to pay at least the basic value of your business.
  • Too often, sellers don’t recognize that they have the opportunity to monetized the intangible value of the business. When they try to go it alone, inexperienced sellers do not properly substantiate, support and quantify the intangible value of their business to maximize the sale price.
  • Applying proper valuation methodologies and techniques for your industry can help you maximize the value of your business that you can command. It is also important to use historical financial statements to sell the advantages of this purchase opportunity for the buyer.

Negotiate a winning deal structure

  • The structure of the transaction is just as important as negotiating the valuation.
  • To secure and preserve the maximum value of your company, it is critical to build a strong exit team that can effectively structure a winning deal and negotiate the terms and conditions of the transaction itself.

These three guidelines will translate to maximizing the value a buyer will pay for your business.

Key Factors That Drive Timing Your Exit

 

When you start planning early how to get out of your business, you have more opportunities to consider, apply or change a wider range of factors.  Here’s a short list of Seller Factors, Market Factors and Buyer Factors that can impact the timing of your exit.

  • Seller Factors – these are factors within your domain where you have the option and control to make changes or make different decisions.
    • Lack of capital
    • Growth beyond comfort level
    • Contingency/Continuity Plans
    • Tradeoff between selling early and selling late
    • Owner Boredom / Burnout/ Health/ Family
    • Legacy/Dynasty
    • Other interests
  • Market Factors – these are factors outside your direct control but they impact your customers, demand for your offering, competing companies for sale, and valuation.
    • Favorable economic climate
    • Low interest rates
    • Advantageous tax treatment
    • Government regulatory changes
  • Buyer Factors –these are the factors your potential buyers think about, study and weigh in timing their acquisitions
    • Meeting growth expectations
    • Slow organic growth
    • Increasing competitive pressures
    • Diminishing market share
    • Globalization of industry

Sellers do not control the timing of the transaction, the BUYER and the MARKET determine timing, but sellers can be prepared and take control of many factors that drive price and timing.

  • Achieving liquidity is most often the single most important financial event for a private business owner. Market timing is perhaps the most critical factor to securing maximum value in the sale of a business.
  • While numerous factors may drive a seller to seek immediate liquidity in their business, currently, the needs of the buyer and the conditions of the market ultimately dictate timing and value.
  • Selling a business when the owner is done with the business, too often leads to lower valuations and less leverage. Achieving maximum value for a business requires the owner to commit to be mentally and emotionally prepared, to make the business buyer –ready and buyer-attractive, to be “deal-ready,” to start monitoring the buyer markets and then act decisively at the proper time.

MARKET Timing Conditions

  • When you are evaluating the right time to sell a business, market timing is critical. The local, national and global economic climate, interest rates as well as the tax and regulatory environment all impact market timing.
  • Current interest rates are at the lowest levels in the past fifty years. These low interest rates reduce ROI rate requirements for optimum buyers for your company. Financial buyers can pay more to acquire your business.
  • Lower long-term capital gains tax rates also allow sellers to retain more value than ever before. Currently, a seller can benefit from a 15% long-term capital gains tax rate. However, these rates will be phased up to 20% over the next five years.

BUYER Timing Conditions

  • Strategic buyers at large public companies are under pressure from Wall Street to meet revenue growth and earnings projections. These buyers are always monitoring buying opportunities in order to rapidly improve corporate position and strength. Strategic buyers purchase companies to increase market share, expand geographically, acquire new products and gain competitive advantages.
  • Added competition in the market drives up valuations for buyers to compete effectively.

This Way Out Group understands the importance of timing in selling your business

The team at This Way Out has decades of experience helping owners to sell private companies. We are experts at evaluating options and understanding timing, including both market timing and seller timing issues. We can show you how to use both the timing of strategic buyers and market timing to your advantage.

Exit Essentials – How to Get Out

Can You Help?

Here’s my introduction to why I’m raising funds to publish this book.
http://igg.me/p/120601?a=689053

I help owners and entrepreneurs to prepare their optimum business exit strategy. I’ve been consulting to entrepreneurs and business owners since 1988, helping them build a stronger company that can grow to fulfill the owner’s dreams.

My project is publishing and promoting my new book,

Exit Essentials – How to Get Out – Exit Planning for Entrepreneurs

Exit Essentials is for every business owner to wants to take control of their own exit planning.
It makes exit planning easy, painless and risk free for the owner.

  Exit Essentials is essential reading for the 21 million Baby Boomer
business owners expecting to sell their business over the
next 15 years. This book is urgently needed by fast-track
CEOs, serial entrepreneurs and Baby Boomer business
owners who are leaving 30-50% of the value of their business on the table,
accepting a lesser sale price and compromising their retirement.

Stephen Covey taught us to “begin with the end in mind“.
That wisdom applies to your business as well.

  Most business owners are not prepared to sell, pass on, let go, or in any way leave the businesses they have built. They don’t know how.

That’s exactly why this book needs to be published. With your help, we can get it released this year.

There are rewards, bonuses and perks for every donation – no matter how big or small, every donation is critical to achieving the goal. Check it out here: www.indiegogo.com/exit-essentials 

Ten Ways to Maximize Value In Your Business

When it’s time to get out, you want to know you will walk away with the maximum value possible for your business. To do that, you need to demonstrate the value in every corner that the buyer will want to pay for.

How can you showcase the value in each of these areas in your business?

  1. Financials Recasting – Often, this is a view of your business that your CPA can’t see. You want to look at all assets, not just financial statements used to minimize tax obligations.
  2. Market Positioning – Current market analysis and competitive research can be used to validate your 3-5 year projections.
  3. Pro Forma Financials – Forecasting growth and accelerated sales will appeal to your prospective buyers.
  4. Valuation – Know what your business is worth and demonstrate that value long before you enter negotiations with a potential buyer
  5. Identifying Optimal Buyers – The more you prepare your business to appeal to your ideal buyer, the closer to your maximum valuation you’ll be able to see.
  6. Marketing Materials – Renewing company branding and marketing materials and website, adding video, etc., puts a fresh face on the business – curb appeal always commands more value.
  7. Multiple Buyers – Making your business buyer ready and buyer attractive, and clearly identifying who would be an ideal buyer prepares you to recognize buyers even if it’s sooner than you thought possible. When you structure the business and your exit plan to suit your ideal buyers, you will have them outbidding each other to acquire your business for top dollar.
  8. Confidentiality and Timing – When you are always building your business for maximum value – not just because you want to exit fast –  you are prepared to consider or reject  buyer proposals long before you need to get out. It makes the timeline and milestones for exiting easier to keep confidential.
  9. Due Diligence – When you do your own due diligence and resolve any flags it raises before you talk with potential buyers, you get to showcase your business in the best light – for added value – eliminating possibilities for them to find flaws that would bring down that targeted highest valuation.
  10. Deal Structure – When you start planning your exit early, you can explore many more options, variations on those options, and then implement systems and strategies to get you the deal structure you want, so you don’t have to settle for the deal the buyer offers.

When you prepare your exit all along the way, you claim back more leverage at the negotiation table. That creates more options, flexibility and opportunities to maximize value for you in getting out.

If you would like to learn more about maximizing your value, click here and take a look at our library of articles written to help you build and exit your business for highest value.

Topics – Requests?

The list in front of me of topics to share keeps expanding.

Instead of just picking one to write about for today, I thought I’d ask what topics most interest you that you need more of right now?

Here’s a short list of some topics I want to cover.

  • Maximizing Transaction Value
  • Timing Your Transaction
  • Risk Management to Preserve Firm Value
  • Reinvention Definition
  • Selecting Exit Advisors
  • Investor Exit vs. Owner Exit
  • Becoming a Strategic CEO

What else would you suggest?

ROI – What Can You Control?

Return on Investment (ROI) is a measure of the economic return an investor or buyer requires for a given investment.  In the case of your business, the investor or buyer wants to know they’ll receive a specified return in a specified amount of time following a projected timeline and milestones.

ROI is directly related to the risks inherent in running a specific business in a specific industry. As you built and grew your business, you absorbed these risks, and accepted them as a cost of doing business.

But did you ever track those costs? Did you track the impact on your ROI? Can you measure the effect – good or bad – on your sales growth, market penetration,  profit margin? Can you quantify them?

Som ROI – What Can You Control?e of the variables that effect ROI are within in your control. Some of the variables are outside your control but still impact your business, your economics and your ROI.

Everything that can change your ROI, has a direct effect on what a buyer will perceive your business is worth. It’s your job to showcase your business in the best light for the buyer to say yes on your terms.

Here is a Range of Risks buyers will assess. How well does your business handle each one? How can you sell that position to a buyer?

  • Economic Changes
    • Economic downturn – Economic slowdown
    • Rising interest rates
    • Decrease in target market spending
  • Industry Changes
    • Regulatory / government changes
    • Increased competition
    • Threat of foreign entrants
    • Expansion into foreign markets
  • Business Changes
    • Regulatory / government changes
    • Loss of key customers / vendors / team members
    • Substitute goods / product obsolescence
    • New opportunities / new product lines
  • Natural Disasters
    • Earthquake
    • Hurricane
    • Flood
  • Personal Changes
    • Health problems
    • Divorce
    • Exit Timeline

To maximize ROI to a buyer, you must have contingency plans in place for these key risks. To demonstrate that value to the buyer, be sure they are all documented, not just in your head. That’s how you’ll command the full value for your business and come to the negotiating table from a position of strength.

Exit Essentials – Fundraising Campaign

A Fundraising Campaign to publish Exit Essentials – How to Get Out on exit planning for entrepreneurs who want to sell, scale or pass on their business to a successor in the next 3-5 years.

I am launching a campaign to raise funds on Indiegogo.com, to publish my second book: Exit Essentials – How To Get Out. Exit Essentials is about exit planning for entrepreneurs like you. Exit Essentials educates and prepares business owners to be able to monetize their business when they plan to get out, instead of simply shuttering the business and walking away. Exit Essentials reveals the secrets the transaction experts want entrepreneurs to know before selling a business, but no one tells them.

In Exit Essentials, I introduce the 95% of all entrepreneurs and business owners who do not have an exit plan for their business; to the decisions, options and opportunities they need to know about years before they decide to get out of their business.

“[Exiting small business] owners are preparing for the deal of a lifetime with possibly zero experience.” – (MorganStanley SmithBarney publication, 2011) [via Blackbridge Newsletter 2011]

They think they’ll be able to sell when they want for what they want with no lead-time or preparation of the business, the team or the business owner. That’s a diet of hope and promises that will satisfy no one.

“Because of a lack of pre-planning, most business owners are leaving up to 50% of the value of their business on the table when they exit. This situation is totally preventable.“

Exit Essentials should be required reading for all business owners in order to take control and achieve their goals in the business and beyond.

Every donation at http://indiegogo.com/exit-essentials is important to get this book published and distributed. To thank donors in tangible, measurable ways, I’m offering some big perks. In addition, supporters of this fundraiser will be able to get the book Exit Essentials and other rewards first.

I need your support to get Exit Essentials published fast, so owners like you will be prepared for the coming sellers’ market. Thank you very much.

Will A Buyer Pay for Past Performance or Future Projections?

future high way sign

When you want to get out, do you look at past performance or the future potential of your business? Too often, business owners erroneously assume that a buyer will want to buy the business based on past performance. Buyers go through due diligence specifically because they want to know what the business can deliver moving forward after you get out.

To add perspective, let’s compare both scenarios:

Getting Paid for the PAST

There are three core elements to selling your business:

  1. When you sell your business
  2. How you structure the transaction
  3. The business valuation itself

You deserve to be paid for what you’ve built. You stand on your past performance. But that’s not the same as preparing the business to be buyer ready so they see the full value of the business as it stands now and what the future could hold. Only when you make the business self-sustaining without your personal operational control each day, can your buyer see what the business itself can do. Unfortunately, without that preparation, in many private company transactions, there are stories of 75% of sellers leaving up to 75% of value of the business on the table.

Getting paid for the FUTURE

Informed and interested buyers do exist at all levels. They actively seek out smaller companies for a range of reasons (e.g., to increase their earnings and competitive position within their marketplace), all based on the projected ROI. As the seller, it’s up to you to demonstrate your company can deliver that ROI looking ahead, not backwards.

Unfortunately, it’s far too common for inexperienced sellers to negotiate the sale of their company based on historical performance. While that historical performance is important, it is not the driving factor on which the buyer will base his decision. Rather, buyers are all about the future earnings and potential growth of the company. Their future ROI not your past success is most important to the buyer.

As a basis for business valuation discussions with any buyer, it is essential to use realistic future cash flows and earnings of the business. For buyers, the future potential of an acquisition is far more important than its past performance.

To be a successful seller, you must recognize that buyers will not pay a premium for past financial performance. Instead, they seek to maximize the value they can gain from your business in the future. That’s what you must sell them.

Selling to the Wrong Buyer

Often, private companies will sell to professional or personal acquaintances, including employees, family members or competitors. However, these sellers fail to recognize that buyers often come from unlikely sources, locations or industries.

Acquiring buyers do exist. They actively purchase companies to sustain earnings growth. Sellers who fail to retain an advisor often forego the opportunity to engage a selection of optimal buyers.

There are still other risks in selling your business:

1.    Selling at the wrong time

Timing is everything when it comes to selling your business. Selling a business at an inopportune time is one reason too many sellers leave significant money on the table. Key factors when considering timing your exit include the economy, the market, interest rates, as well as the impact of tax and regulatory constraints.

2.    Structuring the wrong deal

Inexperienced sellers easily become fixated only on the purchase price while neglecting the importance of overall deal structure and the full range elements and outcomes. Taking the time to creatively structure the deal around all your needs and preferences as the seller will expand options to generate the maximum value you while minimizing tax liabilities.

When you plan ahead and plan early, you can ensure that no money is left on the table when you sell your business.

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