Exit planning is like many other business functions: There is an optimal way to do it and a less-than-desirable way. Far too often, because of a lack of knowledge about the M&A process, we find that business owners choose the latter more than the former. This is one reason why we hold exit planning conferences throughout North America. By learning some basics about how to exit, you can preserve your legacy for years to come.
And the good news is that there are some straightforward concepts that will allow you to exit your business for maximum value if you follow them. Here are the key ones we have learned over the years:
As you can tell, I have outlined these in roughly the order you should approach them in your exit planning process.
So how do you build a buyer ready business? Simply approach the operation of your company with one goal in mind: How do I grow this business so that buyers will find it attractive in the future? Over the years of talking with hundreds of buyers, we believe there are two fundamental areas to focus on when creating an attractive company for buyers. You need to reduce risk by minimizing both owner dependence and customer concentration.
If you make 100% of the major decisions and have not developed a capable middle-management team, buyers will be concerned. Likewise, if a significant portion of your revenue is generated by a limited pool of clients, buyers will take notice. Worse yet, if these client relationships are all dependent on you, it really could be a problem for buyers.
Grow your business with this end game in mind, and focus on reducing risk associated with you and your client base.
Next, what is your business worth and how does that relate to how much you need/want at exit? The two go hand in hand. Sadly, most business owners have no idea what their companies are worth. They think they might, using some rudimentary industry standard formula, but the reality is that is not the most accurate method in many cases.
This is why it is vital to hire an M&A advisory firm early on to value your business and provide you with ideas on how to grow it to match your financial needs. You can’t decide when to sell until you know the value of your business today.
Once you know your company’s value and you have decided that now is the time to put your exit plan into action, it is vital to create documentation that accurately highlights where your company has been and more importantly, where it is going.
The first step is telling your company’s story, documenting the past, and projecting the future using facts, reliable forecasts and projections. One key point: If your company has grown 5% annually for the past 10 years, avoid the hockey stick forecast that has you doubling that every year going forward. Buyers want reality, so should you.
Finally, once your documentation is in place, you need to try to get as many buyers interested in the business as possible. The auction process can be a daunting and demanding aspect of exit planning. Again, having a professional firm on your side can really help.
Keeping multiple buyers in hand, interested, and motivated is a specialty that Generational Equity dealmakers concentrate on. This is probably why no lower middle-market M&A firm has sold more companies in the past 10 years or so. Our process is designed to optimize the return our clients have invested in their companies.
Unfortunately, time and space do not allow me to expand on these four principles further, nor to add in the many others that exist. You will learn more by attending a Generational Equity exit planning conference in your area soon. These highly educational meetings are complimentary and designed to help you quickly learn all the basics you need for effective exit planning.
And be sure to follow the four basics outlined in this article to optimize your return on investment.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2017 Generational Equity, LLC. All Rights Reserved.
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
By submitting my name electronically and clicking the “submit” button, I understand that I am providing Generational Group, Inc., Generational Equity, LLC, Generational Capital Markets, LLC, DealForce LLC, their affiliates, representatives, contractors, etc. (“Generational Group”) my telephone number, which may include a number that is wireless and/or a number that is on a national, state, or other Do Not Call registry or list. I hereby consent and agree to receive telephone calls including any autodialed and/or pre-recorded telemarketing calls and/or text messages (telemarketing) from or on behalf of Generational Group at the telephone number provided. I further consent and agree that telephone calls may be made using automated technology such as an automatic telephone dialing system, artificial or prerecorded voice, or SMS text messaging. Consent is not a condition of purchase. I further warrant and represent that any telephone number provided is not on any state or national Do Not Call Registry and that by agreeing to these terms and conditions that if any number provided is on any such registry, I hereby consent and agree to receive telemarking calls and/or communications including any phone calls, text messages, URLs, links, emails, etc. to the telephone number(s) and/or any e-mail addresses provided. I understand that by entering my name in the electronic form provided, that I am signing my name as equally as if it was my handwritten signature and that it is my intent to provide an “electronic signature” as that term is defined in state and federal law, as well as industry practices for e-commerce.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.
Success, you have been added to our list.