Millions of baby boomers have spent the better part of their adult lives building their own small to mid-market businesses. Most of these people will retire within the next 10-15 years, but what will happen to their businesses? Without a well-thought out plan, most of them will simply cease operations, leaving billions of dollars “on the table”. Millions of jobs will also disappear if these companies shut down.
It doesn’t have to be like this. If you are nearing retirement age or want to get out of your business before you reach retirement age, you need to develop an exit strategy. The best time to start planning is NOW.
The first step in preparing an exit plan is to conduct a careful assessment of your business, your personal financials, and your goals. Most small business owners overestimate the value of their business, and underestimate what they will need after they leave the business. An in-depth business assessment will identify business strengths, weaknesses, opportunities and threats. A review of your personal financials and goals will complete the picture and identify the gap between what you want in the future and what you can reasonably expect based on your current position.
Patience and Planning Pay Off
Once the assessment is complete, the next step is planning. What are your options, and which one is right for you?
Most business owners immediately think of selling their company to an investor or entrepreneur, but this is just one option. In fact, there are many options for exiting a business, including
- Sell the business to an investor, business, or family
- Private equity group recapitalization
- Management Buyout (sell the company to one or more members of the management team)
- ESOP (Employee Stock Ownership Plan) Conversion
- Worker Owned Cooperative Conversion
- Gifting (donate the business to family members, a charity, or employees)
In reality, few of these options are available to any business at any particular time. For example,
- An ESOP conversion is generally too expensive for busineses with revenue below $5 million.
- Private equity groups are rarely interested in businesses with revenue below $5 million.
- A sale to an outside party can be very attractive when the economy is doing well, but prices can drop precipitously in economic downturns.
- While a conversion to worker owned cooperative is a complete mystery to most attorneys and consultants, it can be an extremely attractive option for a wide range of businesses.
We help business owners explore their options, select the best one, and then develop a detailed plan. We then work closely with specialists to help our clients achieve their goals. We also help clients prepare for an exit. This can be a multi-year process, as described in this hypothetical case study.
Here are some of the most common issues that decrease company value:
- Little or no recurring revenue
- Low customer satisfaction
- Too dependent on one or two key people (internal)
- Commodity business with little differentiation
- Unsteady or poor cash flow
- Too dependent on one or two customers (external)
- Limited ability to scale
Contact Us now to unlock the potential in your business.