Five years ago we met with the owner of a successful business who told us he wanted to exit in the next few years. When asked if he knew who he wanted to sell the business to, he responded: “I guess I will sell to a third-party buyer”. He didn’t at all seem excited about that, so with further questioning, we learned that he was moving ahead under the assumption that a sale to a third-party was his only option.

Sarah wanted to exit in 5 years and had learned through planning and analysis led by her exit planner what “her number” was, as well as an objective estimate of the value for her business. She was pleasantly surprised to find that the financial gap for making her post-business dreams happen is not insurmountable. At the same time, she is aware that growing the value of the business (Sarah’s largest asset) will be necessary to close the existing gap.

One of the compelling and common characteristics of successful owners is their optimism.  Their “glass is always half full” attitude results in the risk-taking, perseverance, and innovation it takes to build and grow a successful business.  And, like it is with any personal strength, this strength of optimism can quickly become a weakness when there is a need to plan for the gloomy business contingencies of death and disability.  What happens to the business due to either of these less than optimistic events is probably the last thing an owner wants to think about.

In my past life, when working in the financial services/wealth management industry, we helped individuals and families create financial plans for their goals such as college education or retirement.  It was very unusual to have a conversation with a client or prospective client who did not already understand that the sooner they began planning the better chance they would have in achieving their goals.

It is not uncommon for the business to be the largest asset in a business owner's estate, while also being the primary source of income for their family.  As estate planning is essentially taking control of how property is managed during life and distributed and transferred at death, a business owner cannot do exit planning without estate planning, or estate planning without exit planning.  Exit goals, such as transferring a business to children, always impact an owner's family and estate.

Janice founded her business 15 years ago at age 45 and her business has realized a modest but consistent growth rate (revenue) of 5%. Like most small business owners, she has invested her time, money, blood, sweat, and tears in building her business. Her perspective has always been “if we don’t focus on today, there may not be a tomorrow!”.

For many, January is a time of rebirth and resolutions. It’s a month to reflect on last year’s achievements and to set goals for the year ahead.

Some people will set personal goals like losing weight or quitting a nasty habit, and most company owners will set business goals that focus on hitting certain revenue or profit milestones. But if your goal is to own a more valuable business in 2019, you may want to make one of the following New Year’s resolutions:

If you’re trying to figure out what your business might be worth, it’s helpful to consider what acquirers are paying for companies like yours these days.

A little internet research will probably reveal that a business like yours trades for a multiple of your pre-tax profit, which is Sellers Discretionary Earnings (SDE) for a small business and Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA) for a slightly larger business.

Business owners frequently approach exit planning much like a new fitness routine. They know it is necessary, but it always seems to be something that can be put off until tomorrow.

The demographics of the Boomer transition are not very encouraging for business sellers. We are rapidly approaching the worst imbalance between small business sellers and buyers in history, and it will continue for the next 20 years.

Exit planning has become a new buzzword for those who consult to Baby Boomer business owners. Business brokers, wealth managers and other professionals are adding “exit planning” to their marketing messages.  It’s a logical reaction when over 5,000,000 Baby Boomers are preparing to leave their businesses.

Not surprisingly, when a business broker creates an “exit plan,” it usually involves listing the business for sale to a third party. An attorney’s planning focuses on the legal documents that allow the transition of the assets of a company to new ownership. An accountant or financial planner will look closely at tax and inheritance issues, and an insurance broker offers products that reduce the risk of interruption or disaster.

Entrepreneurs can have many reasons for wanting to launch and own a business, but typically "freedom" is a key motivating factor.  And, when your business is sellable, not only do you enjoy increased freedom today, but also in the future when you realize more options for your eventual exit. 

Our engagements are mostly with business owners who want to design and implement a plan for their eventual transition/exit from the business.  However, on occasion, we are contacted not by the business owner, but by an inside employee who has questions about potential ownership, or their future in a closely-held business.  Insiders typically include key employees, a child of the business owner, or a co-owner. 

An initial and essential step in preparing for your eventual exit from your business successfully is a personal financial GAP Analysis calculating how much money you will need to attain your goals, for the rest of your life post-exit.

Too often business owners rely on a “back of the envelope” or subjective estimate of business value for this calculation, which results in planning that is not helpful and lacks integrity.  And, as the business is often the largest asset in an owner's investment portfolio, it is particularly important.  Meaningful planning requires accurate data.  

Our past client and friend Peter Giglio, Sr, owner of Gaithersburg Garage Door had built a profitable and reputable local business over twenty-plus years in Montgomery County, MD.  Pete and his team were focused on being the best garage door dealer, installer, and service company in the Washington DC area.

After convincing a prospective client they need to begin today designing and implementing an exit plan, they might have the following response…

 “Ok, I get it…I need to start planning today…I agree.  But why do I need you?  You’re just one more added expense.  Why wouldn’t I just ask my CPA or Attorney, who I’ve known for 20 years to lead the process?  I’m going to need them in the process anyway…”.  Our response would go like this, “Well, that is true…you might not need us.  You can ask one of your current advisors…and they may be the right choice if they have comprehensive exit planning as a practice and area of focus.  But, consider this also -- are you going to most benefit from your CPA focusing mainly on the tax implications of your exit, or your Attorney focusing mainly on legal and risk management issues…or having them also manage all aspects of the planning process?”

As a business owner you pour your heart into your work and it has become part of you. But at times, the business you have carefully nurtured for years can become a burden - there's a part of you that yearns to do something else - travel, spend more time with family, enjoy more leisure, or even start another new business. You are confused. 

So when it comes to considering the future of your business, where is your heart?

My partner and I met with the Managing Member of a Private Equity Fund recently who is currently seeking to make a new investment in a business with revenue between $2 million and $20 million. He was referred to us by someone thinking there could be synergy between our firm and his, as we are regularly in contact with business owners desirous of selling their business.  

As an entrepreneur who has spent years working to grow a privately held business, you are left with many questions about transitioning to the next stage of your life.  The biggest question usually is, "what is the most efficient way for me to sell my business?"  Since the increase in capital gains taxes and surge of baby boomers retiring, the use of Employee Stock Ownership Plans as a monetization strategy has been a growing trend.