Many baby boomers are now ready to
taper off, slow down, travel and do
all those things that have been on the back burner for the last 30 years. Often with
a sense of urgency, and a self-imposed deadline (such as age 60), an executive will scrape
together a fast strategy to retire. Emotion,
rather than solid planning, drives the business sale. Once a transaction is complete,
there’s no way to get back what was sold. An
owner may feel displaced. What’s next?
“Exit planning is a long-term process, and
owners should not make these decisions precipitously,” says Barry Worth, a member
responsible for mergers and acquisitions at
Brown Smith Wallace LLC. “They should line
up their goals and objectives and seriously
consider how they will spend their time once
the business is sold.”
Smart Business spoke with Worth about
exit strategies and how to address and prepare for life after the business.
Before you begin preparing for a sale, what
lifestyle issues should be addressed?
The first questions to ask are: Have you
thought about how you want to live after the
business is sold? What will you do when you
no longer go to the office every day? How will
you maintain an income to continue living
the way you prefer? If you want to travel, you
may have plenty of time once the business is
sold, but will you have the resources to make
it happen? Start the exit planning process by
outlining goals and objectives, which leads
into wealth and financial planning. Most
owners fall into two camps. The first group
has thought seriously about the business not
being a part of their lives, and they are confident that they have many interests or other
business ventures to pursue. The other group
isn’t so sure what life will be like without the
business, and they don’t know how they will
replace their incomes.
What about owners who want to exit but
aren’t prepared to completely pull away?
An owner can recapitalize the business and
get a second bite of the apple, so to speak, by
selling a majority of the business to a buyer
and maintaining a minority share, still working in the business’s daily operations. Many times, this buyer is a private equity group or
other strategic investor that plans to grow the
business and sell it down the road. This
arrangement can be beneficial for owners
who plan to exit in the near future, still want
a revenue stream from their business and
some involvement, but no longer want the
financial burden of investing in the business.
The benefit for buyers is having the former
owner involved in management. Eventually,
the private equity group will sell the business
and both parties will move on profitably.
How do you prepare for a sale?
While this process is an entire topic in itself,
analyzing and valuing a business to prepare it
for the market is a critical part of an owner’s
exit plan. Generally, an owner has one shot at
maximizing his or her return, and it’s usually
on the first go-around. Therefore, the owner
and advisers must analyze the business with
the goal of presenting the best package to
potential buyers. This means evaluating personnel, operational efficiency and record-keeping processes. Every component of a
business is raked over with a fine-tooth
comb, and areas that need polishing are tended to before the business is listed for sale. An owner’s greatest asset is his or her business.
When exiting, every weakness will subtract
from the owner’s take-away value.
What about ‘Plan B?’
An important part of exit planning is
addressing contingency planning. What happens if the owner’s post-exit financial plan is
built around a certain number that the best
buyer simply will not pay? There must be a
‘backup’ number — a second best. While a
business valuation is a key indicator, the market puts a value on businesses and it may not
match a formal valuation.
Who is involved in exit planning?
Exit planning is truly a team effort, and it
generally involves an accountant, attorney
and often a trusted business confidante and
investment banker. After the owner identifies
goals and objectives, responsibilities are
divided among team members. The process
is no different than a sports game. Each player’s individual strength and contribution
leads to a team win. In an exit plan, each
adviser plays a key role in carrying out the
strategy and, eventually, obtaining the goals
and objectives of the owner. That said, someone besides the owner should play quarterback and direct the exit planning process. If a
third party is keeping score, the owner is
more likely to stay on track. Otherwise, forward-looking plans are easily shifted to the
back burner as the owner puts out daily fires.
How does the economy affect the acquisitions market for owners looking to sell?
In today’s economy, the credit crunch certainly introduces challenges in completing
smaller deals, but there is a strong market for
solid companies that are well organized.
Acquisitions are, frankly, the quickest way to
improve market share. Owners who carefully prepare their businesses for sale, and
understand what they must get out of the
transaction to live the lifestyle they choose,
may discover there are plenty of buyers
ready to make a move.
BARRY WORTH is a member responsible for mergers and acquisitions at Brown Smith Wallace LLC. Reach him at (314) 983-1202 or
[email protected].
