Sooner or later, every business owner will confront the issue of what to do with their business. As growth accelerates and the owner builds equity, the exiting process increases in complexity. Common questions include: How can I identify a legitimate buyer? Should I consider selling on an installment basis? How can I pass the business to family members? What is my business worth? There are many answers to seek before an exit strategy is formulated.
Exit Strategy Video
Whether the exit decision is voluntary, forced by poor health, or other uncontrollable factors, this SCORE Business TV series starting with Part I, Cashing In - How to Exit Your Business, provides business owners with some of the answers.
What You Will Learn in this Episode
In this video, host Dennis Zink and his two expert guests Mark Dunlop and Ken Chapman discuss the following topics:
The most common forms of exit strategy.
Size of businesses considering an exit strategy.
The optimum time to start planning for business succession.
Business categories that are not likely candidates for a successful exit.
Key considerations before selling a business.
The most important issues to consider when selling a small business.
Increasing the value of the business well before entering the exit phase.
The most common purchase finance tactics possible for buyers.
The role of SBA in a buy and sell transaction.
Franchises, what does that add or take away from the equation when you're selling your business?
Is intellectual property theft an issue?
The importance of audited financial statements.
Examples of successful exits.
Examples of unsuccessful exits.
Difference between asset sale and stock sale.
Importance of cash flow versus receivables and assets.
Advice to business owners thinking about an exit strategy.
Advice to business owners who have not considered starting thinking about an exit strategy.
Banker Advice Excerpts
“Business owners need to be working with people such as SCORE mentors frankly that can help them understand the timing, help them prepare to sell at the top, not wait until they've lost interest, not wait until something else has come up, not wait till there's been a family crisis or a health crisis to try to sell their business, but sell it when that asset has its top value. Maybe that means you're getting out of it before you plan to. But if that's the best return you can get, then you need to have a good exit strategy in place to sell your business at the peak.” Said Mark Dunlop, VP at Bank United.
“If you're selling your business to employees, you're selling to family members, you may have some flexibility in timing and structure that you may not have with the other options available to you. But primarily the thing that I see most often is timing. When a seller of a business waits too long, they've lost interest in the business, sometimes it's two or three years that they've lost interest in the business. The client base begins to erode, the profits go away, and now you're trying to sell an asset for a lot lower value than you could've received had you planned better and sold it at the peak.” Added Dunlop.
Legal Counsel Advice Excerpts
“If you don't have your financial records well kept. If you don't have your legal records well kept. If your contracts perhaps are stale. If you haven't made enough time to get your intellectual property secured. Do you have liabilities or conflicts, potentially lawsuits out there that need to get resolved before you go to market and decide to sell your business? All these things can detract from the inherent value of a business because essentially it just creates a mess, it creates hair if you will, and those are the deals that don't tend to go as quickly and as smoothly as they could otherwise go.” Said Ken Chapman, Partner at Bowman George, explaining how owners can avoid selling a business too late.
“Start the process as soon as you can. Once you as a seller or an owner realize you're going to be selling a business, you need to start planning for that as soon as possible. You need to create your transition team. You're going to need to pull in a qualified experienced CPA. You're going to need to bring in legal counsel who has experience in merger & acquisition, buy/sell type transactions.” Added Chapman.
SCORE Business TV, Cashing In - How to Exit Your Business
Hope you enjoy part one in this series of episodes addressing business succession starting with today's topic, Cashing in and How to Exit Your Business. For more information on exit strategies and on the Exit Strategy Canvas, click here.
Dennis Zink, SCORE Manasota Chapter Chair
Mark Dunlop, VP at Bank United, N.A.
Ken Chapman, Partner at Bowman George
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SCORE Can Help
To get help with planning your exit strategy, request a free SCORE mentor by completing this form today!