For some people, the thought of selling their business is absolutely exciting: it means getting ready to start a new adventure, whether that’s a new business, or just a new life adventure. For others, the thought is filled with a bit more terror of the unknown, not knowing what lay on the other side. For everyone, though, the process can seem a bit daunting.
The question, then, is where to begin when considering selling your business. What’s the first step? How do you find the answers to the questions you don’t know to ask, without getting too committed that you can’t change your mind?
At Merit Harbor Group, the first step we recommend is to seek out a Certified Exit Planning Advisor (CEPA) who can help you consider all your options and inform you as to how the process of selling and exiting a business works. At Merit Harbor Group, Our CEPAs are trained consultants who also have access to expert investment banking resources.
Your exit planner will take you through a process of discovery about your business and your personal and business goals. Before you make any decisions about selling your business, the following things should happen:
Formal Valuation Your exit planner will conduct a formal valuation of your business, examining the asset, financial, and market based factors that drive the valuation of your business. This is a critical first step in the planning process even if you think you know what your business might be worth. That’s because according to 95% of M&A professionals, many businesses don’t sell because of unrealistic owner value expectations. It’s important to find out the marketable value of your business early.
Value Gap It’s important to consider not only the present value of your business but the after tax value you need to realize in order to recognize your financial goals. Anything short of this mark is a value gap and needs to be resolved. Your exit planner will work with you to identify any value gaps as well as plans to resolve them.
Business Analysis The reality is most business have some level of value gap, or put another way, most business owners would prefer to realize greater value. That process starts with a deep analysis of the business, its plusses, and room for improvement.
Options Analysis There are more than 40 ways to exit a business, organized into seven primary categories. A key task in this first stage of exit planning is to narrow the focus to the those critical few that are realistic options for your scenario so planning can begin in earnest.
Action Planning Action is important in the Exit Planning process. Based on the above analysis, personal and business action plans are created that are designed to drive your exit plan forward as well as to increase the value of your business in order to realize the value you need in order to exit on your own terms and in your desired timing.
As you can see, this first stage of selling your business is about answering the unknown and taking away that feeling that you don’t know what’s coming next. By engaging in exit planning early, you maintain control of how and when to transition from your business, and you put in place a manageable plan to exit on your terms and on your time.
Dustin Walling, Principal