Many owners of successful businesses focus most on the final sale price of their business, as do the professionals who help them sell it.
This is often a mistake.
The reality is, it’s not just about getting the absolute maximum amount you can for the sale price. It’s also about how much you get to pocket, what you do once you get it as well as non-monetary concerns, such as ensuring employment for your current employees.
All of this falls under the umbrella of comprehensive exit planning — high level planning that an increasing number of successful entrepreneurs are implementing when it comes time to sell their business.
Let’s take a look at this crucial step in the process of selling your company.
The need to be comprehensive
Selling your business is probably going to be the most important transaction in your career. You’ve built incredible value into your business and now it’s time to harvest that value!
Comprehensive exit planning takes corporate exit planning, which is the sale of the business itself, and fuses it with strategies for personal wealth maximization and protection of that wealth for your family. It takes into consideration all the major financial areas of your life to ensure that, not only do you make that wealth, you keep it and benefit from it indefinitely.
Being the owner of your successful business, the first stage of the comprehensive exit planning process is to identify your goals and objectives.
Your expectations, from what you want to happen to your business after the sale to what your life is going to be like afterwards, are the main factors in determining how you approach comprehensive exit planning. You would be well advised to find a financial professional for this process of discovery.
Once you have direction, which will likely change over time, you’re free to start elite wealth planning and corporate exit planning.
Elite Wealth Planning
Elite wealth planning focuses on the personal side of wealth. It is an in-depth planning process that combines technical expertise, legal strategy, financial products and the human element. The human element is the personal and emotional component that includes everything and everyone important to you.
For many successful entrepreneurs, elite wealth planning has two goals:
1. Structure the ownership of your business to minimize taxes on exit. There are many different strategies which can be used to lower and sometimes even eliminate taxes that largely depend on your situation.
2. Protect assets (your business especially) from unfounded and frivolous lawsuits. Many entrepreneurs fail to ensure their personal wealth is protected from people who want to take it from them unjustly. Being able to insulate your wealth from them is very important.
Corporate exit planning
Many entrepreneurs shortchange themselves when it does come time to actually sell the business. You may be excellent at running your company, but you may not know enough about how to value your business and get maximum value for it.
Corporate exit planning is a strategic guide for selling your business. It explains the sale process, taking into consideration your overall goals and any concerns you may have.
It is best to plan your exit well in advance of selling your business. Depending on where you are with your business, it could take months or even years to make sure the pieces are in place so you can package and sell your business at maximum profit.
Example: As the owner, your business is likely dependent on you to continue to be a success. If you’re selling it, you need to be made redundant — other highly capable people must take your place and stay with the company after you’ve sold it.
There are several steps to creating a strong corporate exit plan, including:
Valuation. There are many ways to determine a company’s worth. It is part science, part art.
Identifying drivers of value. These are aspects of your business which are attractive to potential buyers. They are crucial in marketing the business and negotiating a higher price when it comes to the sale.
Maximizing value enhancing activities. You should take actions that enhance your business’s valuation. Examples of this would be fixing management problems, locking in customers and eliminating expenses, especially personal expenses.
Weighing the exit options. There are many different types of buyers. Examples include family, senior management, competitors and private equity firms. The possibilities and implications must be considered for each option.
Deciding when to sell. Macroeconomic and business cycle factors play a substantial role in deciding the best time to sell, along with personal matters. You must be ready to sell when the circumstances are most favorable.
Effectively marketing your business. Marketing plays a huge role in selling your company. The ability to identify a larger number of interested buyers can create a competitive environment which can put you in an excellent negotiating position.
Revisiting your plan after you sell
After you have sold your business, your personal world will change — probably significantly. This is when elite wealth planning comes back into the picture. Examples might be that you have to update your estate plan or restructure your asset protection plan.
Then there is the ton of cash you have now that the sale is over. Deciding how to manage that is imperative. If you lack the expertise, you must identify high-caliber professionals who can help you invest your wealth in alignment with your objectives.
Other, more personal issues can become important after the sale, as well. For example, business owners and their families often embrace philanthropy after the sale. They find they have the time and money to donate to causes that are deeply meaningful to them. Perhaps you will form a private foundation or another philanthropic vehicle which will require charitable planning and management.
Ultimately, a good comprehensive exit plan will accomplish four things:
1. Provide guidance on what is important to you, your goals and objectives.
2. Ensure you get the maximum value for your company based on the parameters set by you.
3. Make sure you walk away from the sale of your business with the most after-tax money possible.
4. Position you to best manage the proceeds and protect your wealth for after the sale.
If you’re a driven entrepreneur and have such a plan in place, congratulations! You may be already set up for success.
For any issues or concerns you may have around selling your business or preparing to sell it down the road, find a quality financial professional. Advanced planning now could be very valuable when it comes time to exit the business.
Timothy J. McNeely is an Investment Advisor Representative with Dynamic Wealth Advisors dba Lifestone Family Office. For more on how you can adopt the habits of a driven entrepreneur and make your business even better, contact Tim McNeely of LifeStone Family Office by visiting LifeStO.com, by phone at (661) 368-0947 or on twitter at @timmcneely.