As a business owner, you will likely sell a business only once in your life. The learning curve is steep and there is no opportunity to learn from mistakes and do better next time. Furthermore, if your plan includes selling your business to a buyer who has made several business acquisitions, you are dealing with a buyer who has learned from their past mistakes and is now armed with a team of professional advisors, as they negotiate with you for the purchase of your business. Their experience puts you at a distinct disadvantage, as you begin negotiating, structuring and engaging in your sale transaction for the first and only time. As a novice you would clearly benefit from having experienced, professional advisors on your side. But which advisors do you need?
Do I need a business broker?
You may need a business broker, but not every exit plan will require one. A business broker will typically work with a business owner who wants to sell their business to a third-party buyer. They can be very useful in finding the right buyer, prescreening the buyer and negotiating the sale on your behalf. A business broker can be especially effective for you when the business is in a niche market, whereby identifying the landscape of qualified buyers is more challenging.
When your exit plan includes transitioning your business to your family members, or to your key employees, a broker is not necessary. In these situations, the business owner has likely determined that their personal assets outside of the business will be sufficient to fund their retirement lifestyle for the remainder of their lives, therefore, selling the business at the highest possible price is simply not necessary.
In this situation, the business owner may put “legacy issues” ahead of achieving the highest sales price. Legacy issues involve a business owner wanting to exercise some degree of control over the business after exit. This may include preserving the name of the business, taking care of employees and customers, continuing the business at the current location, maintaining the business’ involvement in the community and preserving its positive reputation in the community. These legacy goals of the business owner are more likely to succeed when the owner transitions the business to “insiders” – aka family members or key employees. These insider transitions rarely require a business broker to be involved.
When transitioning the business to employees, however, the business owner should insist the employees have their own advisors (legal, tax, accounting, valuation and other professionals) who are completely separate and independent from the advisors of the owner-seller.
Do I need an investment banker?
As discussed above, you do not need an investment banker when transitioning the business to family members or key employees. In a sale situation, investment bankers tend to work with larger businesses ($50M+) than business brokers. If your business is worth over $50 million, and securing the highest price is your primary objective, then working with an investment banker may be advisable. What they do particularly well is create an auction for your business among larger potential buyers, which tends to drive up the sales price. Smaller companies who seek out investment bankers will be referred to business brokers.
Who do I need to help me exit my business?
A savvy business owner will begin business exit planning with a certified exit planning advisor (CEPA). Many professional advisors are trained to focus only on “the sale transaction,” which is far too late in the process to reap the benefits of exit planning. The approach a CEPA takes, however, is a holistic view of the owner’s business, personal and financial goals. The CEPA then develops a plan to ensure that all of the business owner’s goals, before and well beyond the sale, will be accomplished. If the current trajectory of your business will not meet your long term business and personal goals, the CEPA will identify the gaps in your current plan and recommend strategies to put you and your business on the right course. A CEPA will also guide the business owner through effective execution of their exit plan to assure successful implementation.
Execution includes identifying which other professional advisors will be required, and when to include them. Every business is unique, and the CEPA will identify how to enhance the value drivers of your business, and which advisors will be necessary in that process. Most exit plans will require a number of advisors, such as accountants, attorneys, investment advisors, insurance professionals, financial planners and possibly business brokers or investment bankers. The CEPA may also identify other advisors who can help enhance value, such as human resource specialists to implement systems to enhance the value of your management team, or intellectual property attorneys to improve the value of your intangible assets.
The most important part of business exit planning is timing. You want to begin working on your exit plan when you are not ready to exit your business. This may sound counterintuitive, however, developing your exit plan to accomplish all your personal and financial goals is the first step. Putting it into action is the next step, and the more time you have prior to exit to implement your exit plan, the more benefits you will reap. You will have more opportunities to improve the value of your business and increase the likelihood of success. Significant value is added by creating sustained improvements to your business over a long-term period, quick improvements to your business does not add the same amount of significant value. Involving a CEPA and starting the process very early is the key to planning a successful exit.
A business broker once said the biggest problem he has when helping a business owner sell their business is the business is simply not ready for sale. Why? Because most professional advisors are trained to focus only on the sale transaction, and they do not do the work required to accelerate the value of the business during the years prior to the sale. Working with a CEPA, and starting early (now), will ensure you have an effective exit plan and you work with the right advisors at the right time, so your business will continually improve and your exit plan will fulfill all your business, personal and financial objectives.
Rich Gunn leads BPM’s Value Acceleration Service Team, which helps with succession, transition and exit planning for business owners. Rich is a Certified Exit Planning Advisor and a member of the Exit Planning Institute.
The Business Owners’ Special Series (B.O.S.S.):
The Business Owners’ Special Series (B.O.S.S.) is a library of information for business owners who are proactively seeking guidance from experts on how to implement value acceleration in their business. Be sure to keep reading, if you desire to develop your business to its maximum potential value and gain an understanding of how and why beginning the process sooner results in building greater value.