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Exit planning is critical to business success

exit planning

Many business owners do not have an accurate idea of what exit planning is and why it is an important part of business success today and in the future.  Many believe it is merely one small phase of their business experience that they only need to think about when they are ready to sell.  This assumption is wrong and it can cost business owners dearly.  There are three phases to exit planning and the process begins long before an owner is ready to sell.  Planning in advance can help make a business more profitable, earn a higher sale price, and give business owners time to find the most tax advantageous sale strategy.

Phase 1 – Research and education

During the initial phases of exit planning, business owners need to learn about the exit process.  This includes learning about the different options for selling their business and understanding how each option will affect them.  During the research and education phase of the exit planning process, a qualified business broker can help by providing expertise, guidance, and the most up to date and accurate information about selling a business in a particular industry and geographic location.  A business accountant with experience in similar transactions can help owners determine the most favourable sale type for their business that will help minimize the tax burden.  The research and education phase gives business owners a unique insight into their business that can help them to create targeted and effective short and long-term strategies that will increase profitability in the present and make the business more attractive to qualified buyers when they are ready to sell.

Phase 2 – Implementing strategy

Once the research and education phase is completed, business owners have a better idea of the strategies, ideas, and processes they need to implement to help improve their business and the bottom line.  Focusing on both business processes and overall profitability make the business more appealing to qualified buyers.  Beginning to implement improved strategy a year or two prior to selling can help business owners objectively demonstrate the actual value of their business through bettered cash flow and profits.

I worked with one client who had initially been disappointed when she received the Broker Opinion of Value for her business.  Like most owners, she had unrealistic expectations of the value of her business.  Instead of becoming discouraged, she reviewed the feedback regarding changes that would improve her business and ultimately increase the value of the business.  With a renewed effort and focused strategy, she continued to build the business.  Within 18 months, the value of the business had doubled and it sold for the full asking price, which was considerably higher than the price it would have sold for a year and a half prior.

Phase 3 – Executing the deal

Most business owners think that phase 3 will demand the most amount of time on their part.  This is incorrect.  Phases one and two require the most significant effort from business owners and these phases take place long before executing the deal.  Once the research has been done and the strategies have been implemented for a period of time, business owners can formally engage with a business broker and have them take the reins and execute the deal.  A qualified business broker will handle most aspects of the transaction including advertising, qualifying potential buyers, negotiations, and finalizing the sale.  During this time, business owners should continue to focus on their business, not on the details of the sale.

Successful business sales are a marathon, not a sprint.  Ideally, exit planning should begin long before an owner needs or wants to sell.  Without strategic planning, a business misses out on opportunities to improve and create a track record of success that will appeal to potential buyers.  Exit planning can help to identify and minimize weaknesses, further improve areas of strength, demonstrate growth potential, and show a positive cash flow history.  Contact Acuity Business Group for more information on how you can start exit planning today to have a successful business sale in the future.