Posts tagged with: increase transaction value

Extend Exit Planning Time to Increase Transaction Value

Business owners get lots of support, training, and direction on starting and growing their business. They engage a business attorney and an accountant from the outset. Along the way, they may hear a question or suggestion about how they will cash out the business they built.

But the idea that exit planning and the lead-time to maximize the value of their business could take years is unfathomable for most owners in the lower middle market.

It’s unfathomable, because:

  • No one told them how long the process takes, the range of advisors they and their buyer will call in to assess the sale-ability of their ‘baby’, or its value.
  • No one prepared them for the gauntlet of demands in the transaction process
  • They never knew they’d have to reveal so much about the inner workings of their business – their secret sauce, as well as their personal takings from the business.
  • The [costly] expenses they have avoided along the way are now mandatory to demonstrate the business is a turn-key operation that can run successfully under new ownership
  • They did not need all these different experts while running the business, why should they need any more help to sell the business, after all it’s it as simple and straight-forward as selling a house isn’t it?
  • They’ve been operating the business successfully for decades, generating a healthy income and lifestyle, so why would anything need to change for someone else to buy them out?

The shock of what that valuation could look like if they fast-track a transaction process, vs. the potentially greater valuation if they extend planning time, (to better prepare the business from a few weeks to even a few years), can put a big wrinkle in their retirement plans.

Just a few of the incentives of extended exit planning:

  1. Better prepared companies command higher valuations and higher multiples
  2. Extended Lead-time can showcase increased growth, reduced risk, improved quality of operations, stronger forecasts, etc.
  3. A Planning Phase of 3-5 years gives an owner time to prepare:
  • The business
  • Team
  • Family
  • Financials [personal and business]
  • Owner’s future plans

which can:

  • Reduce advisor and transaction costs
  • Leverage the business to the strongest terms in the seller’s interest
  • Ensure the owner gets a successful transaction the first time
  • Clarify, address and focus the owner on their reinvention

Without an exit plan as a framework for every decision you make, owners end up working harder, not smarter for the lifetime of their business. Starting years before an intended exit date to prepare and plan for your ideal transaction and transition will position you, the owner to:

  • Increase business value to increase transaction value
  • Reduce risk
  • Command higher multiples
  • Grow revenues and profit margins
  • Make the business buyer ready and buyer attractive
  • Minimize the tax burden you will incur
  • Plan and test your reinvention
  • Ensure you don’t sabotage the deal once it’s made
  • Surround yourself with an all-star team of advisors

Transaction Value increases with the length of time invested in early exit planning.


xtend exit planning time to increase transaction value

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