Maven's PlanningTips
This page is an growing list of Maven's PlanningTips. PlanningTips are tips and advice that business owners should know about planning (Exit Planning) for the sale of a business. Be sure to check back monthly for updates. The most recent PlanningTips are listed at the top. Don't Forget To Plan For A Post-Sale Time Commitment To The Business
Will You Have To Roll The Dice?
At their risk, most owners roll the dice hoping to be opportunistic when selling a business instead of following an exit plan. This strategy often leads to sellers leaving money on the table and not enjoying their post sale life.
Exit Planning Fosters Improved Stakeholder Communication
A major goal of exit planning is to improve the communication between key stakeholders in a business. Stakeholders can be partners, spouses, family or key employees. One key role of the lead exit planning professional is to improve the understanding among stakeholders and to promote empathy and trust. Doing so may make it easier to achieve stakeholder compromise.
Business owners should plan on staying with the business for a period of one or two years after the sale. This is especially the case where the business owner maintains key customer relationships and does not have a strong and diverse management team. With the business sale process taking six to 12 months, to play it safe, sellers should start the sale process three years before wanting to be free and clear of any responsibility to the business.
Planning Increases Success Rates
One of the main contributors to a business sale or merger falling through or only partially succeeding is a lack of planning by the seller(s). It is estimated that most business owners spend ten times more time planning to start a business than they do for the eventual exit from their business. For sure, the largest monetization event (business sale) of a business owner’s life deserves far more focus and attention.
Know Your Other Options
While the majority of family business owners desire to sell their business to a family member, the reality is that most are unable to realize this goal for a host of reasons. Among the more frequent reasons are:
- Their children want to pursue other careers.
- The likely successor was not groomed (prepared) to assume the CEO role.
- The likely successor does not have the financial resources to support the selling shareholder’s retirement lifestyle needs.
- The choice of successor creates family disharmony.
Don’t Mistake These As Exit Plans
When asked to define what an exit plan means to them, business owners often say having an estate plan or a management succession plan. These are only two components of a comprehensive exit plan. A comprehensive exit plan is the blueprint to guide a business owner through the exit (sale) of a business into a happy and prosperous retirement.
Assemble A Team Of Advisors
No single professional has all the skills necessary to help a business owner develop and implement a successful exit plan. The exit plan should be done on a collaborative basis and should appoint one professional to function as the team’s quarterback. The ideal team should include an:
- Investment banker or merger and acquisition specialist
- Attorney (merger & acquisition and estate experience)
- CPA
- Tax Advisor
- Financial Planner or Wealth Manager
- Insurance Professional
Exiting A Business Takes Longer Than You Think
When planning when you as a seller want to be free and clear of your responsibilities associated with the business, recognize most buyers will require that you remain on with the business post sale for a period of one to two years in order to ensure a smooth transition and retain key customer relationships. Some business sale or merger transactions involve earn-outs to bridge the valuation gap at time of sale between the seller and buyer. When an earn-out is involved, the seller will want to remain involved to ensure that the performance targets required to receive future earn-out payments are met.
