Business Exit - Beginning Steps

Business Exit - Beginning Steps

Matt Gilbert

December 12, 2018

Gilbert & Pardue Business Advisors (GaP) would like to share this timely information for business owners - and the professionals who advise them - regarding the business exit process. If you are considering a business exit in 2019 or 2020, keep reading for information designed to open discussions about available options.

Get Clear on Why You’re Exiting
When considering a business exit, there are "push" and "pull" factors a business owner must consider. The happiest departures are when there are just as many compelling pull factors as push factors.

Push factor examples:

  • Reaching retirement age
  • Feeling your business has reached its peak
  • Worrying that too much of your wealth is tied up
    in one asset (your business)
  • Getting bored
  • Experiencing a health issue

Pull factor examples (you want more time to):

  • Travel
  • Get in better shape and/or healthier
  • Set up a charitable foundation and perhaps
    donate your time and/or money
  • Start a new business
  • Spend more time with family and friends

Start by identifying your push and pull factors.

Align Your Exit Strategy with the Reason You’re Leaving
When thinking about exiting their companies, business owners often conjure up the image of a spectacular business sale where a strategic buyer swoops in, pays an enormous price, and the business owner (seller) rides off into the sunset. The reality is that there are several different ways to exit a business, and the smartest owners align their exit strategy with their reasons for leaving. These are the most common exit scenarios:

Sell Outright to an Unrelated Party - This is the best option if you desire to move completely out of your business.

Re-capitalization - Under this scenario, a portion of your equity is sold. This may be the best option if you want to diversify your wealth and are still passionate about growing your business for several years into the future.

Liquidation (sometimes called a Fire Sale) - This is usually not a desired option but may be the only one available if your company is distressed or unprofitable. However, it could be an attractive option if you have an irresistible opportunity pulling you quickly towards something better.

Management Buy-Out - This is likely the best option if your senior manager or managers are qualified, interested, and willing to take on the debt required to buy the business and if the company has the predictable earnings required to qualify for bank debt.

Determine which of these options best fits your situation.

Figure Out the Number and Determine Next Steps
No matter how much you want for your company - or what you think you need - if the market says the business is not worth that, then you’ve got some decisions to make. The first step in any serious sale consideration should be “pre-sale” due diligence. At GaP, we employ a two-part process to determine market value and closability and then for listing the business in our “formal sale process.”

PART 1: Financial Review
Our Financial Review is a significantly more useful procedure than a traditional valuation for gauging the preliminary value of your business. Traditional valuations generally prove more useful for tax mitigation, estate planning, divorce settlements, etc. This stage of our process serves 3 purposes:

  1. To determine the range of value you can expect a buyer to pay under current market conditions
  2. To determine - prior to embarking on the journey - that no insurmountable obstacles to closing exist
  3. To document factors that will serve in defense of the expected price range

If you are interested in a GaP Financial Review, we ask that you first take an assessment. By clicking the link below and taking about 13 minutes, you can obtain your Sellability Score. Join the more than 40,000 other privately-held business owners who have obtained a Sellability Score and see how you stack up against your peers on key metrics that serious buyers look for in a company.

Click Here to Get Your Sellability Score

Proprietary algorithms provide data to generate a 27-page report. GaP will use this data as the basis for a free consultation designed to help you determine if moving forward with our Financial Review is your best next step.

PART 2: Determine if Our Formal Sale Process is the Next Step  
If your desired sale proceeds and the market-value range of your business don’t line up, your company may be a candidate for GaP’s planning and advisory services. Our team can work with your team to increase the market value of your business so that it better aligns with your desired outcome. In this case, the formal sale process should be delayed while we work together to enhance transferable value.

If your desired sale proceeds and the market-value range of your business do line up, this is an opportune time to move forward with our formal sale process.

In closing, we know that the thought of selling your business can be a daunting one. GaP’s advice is:

  • Make sure you have an intermediary or brokerage firm who will adopt YOUR goals as their measure of success.
  • Select advisors with whom you are comfortable being “partner-level” open and honest because the process of finding the “right” buyer willing to pay the “highest price” with the “most favorable terms” is an intentional and highly-controlled process.
  • Start now! Current market conditions and the near-term outlook are the best we’ve seen in over a decade. Most industry/business sectors are realizing sale multiples above historical averages for small and mid-sized companies. Don’t miss this opportunity to “see what your business is worth.”

Get your Sellability Score, and we’ll get in touch with you to discuss the M&A market in your industry/business sector.

Join hundreds of other business leaders and owners in the know. We regularly share lower middle and middle market insights and educational content aimed at helping business owners plan and navigate successful exits or partnerships.

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