A business exit plan can have a number of different connotations. You can hear about a succession plan.
At Superb Coaching, we have taken a deliberate stance in focusing on “EXIT” because we are dealing with the business owner’s plan to exit the business. Yes, there are issues related to succession management that we are addressing, but we feel that the exit plan needs to address more than just succession.
Your business exit plan should meet the following goals:
1) Maximize the realization of capital from the transfer of ownership
2) To achieve this achievement within a reasonable time
3) Minimize the risks following a change or during the change period
In a survey conducted by the Australian CPA in 2004, it was found that business owners gave the following reasons for undertaking a plan.
- Age (21%)
- New business opportunities (11%)
- Forward planning / looking to the future (11%)
- Good business practices / logic / common sense (9%)
- Estate / business for children / need it to continue (8th%)
- Wanted to earn more money / opportunity to grow (7%)
- View of the retreat (6%)
- Wanted to sell / stay too long (5%)
- Wanted to get it right this time / direction needed (3%)
- Time needed with family / family death (2%)
- Poor commercial performance (2%)
- Overwork (2%)
- Family breakdown (2%)
- GST too high / for tax purposes (1%)
- Diseases (1%)
- No real reason (5%)
In other research conducted in the UK, a number of major factors have been identified as contributing to SME exit failure. These included.
Businesses with a personal rather than a strategic lifestyle and goals
Poor commercial performance
Dependence of management on the owner
Ignoring the need to make arrangements to quit
In Australia, around 40% of SMEs are totally owner-dependent.
So what are your options for leaving the business?
Small business owners themselves have found the following to be the most attractive.
- Sell or pass on to a child or other family member (25%)
- A commercial sale to a person in the sector (19%)
- Sell to management or staff (7%)
- Advertise the business for sale without identifying a buyer (26%)
- Close the business and sell the assets (17%)
- I do not know (5%)
More interestingly, if we compare the same list above where the business owner has been professionally advised, we observe the following preferences.
- Advertise the business for sale without identifying a buyer (43%)
- Sell or pass on to a child or other family member (30%)
- A commercial sale to a person in the sector (17%)
- Sell to management or staff (3%)
- Close the business and sell the assets (3%)
- I do not know (4%)
Importantly, 43% of owners surveyed expected a continued flow of income from the business after exit. It is a double-edged sword.
Not only do owners want to maximize the value of the sale value, but they are also looking for a source of income to support their future lifestyle.
It becomes evident that apart from the wide range of issues that need to be addressed, maximizing the value of the business is paramount for anyone considering leaving their business.
The experience of Australian CPAs revealed that barriers to maximizing company valuation by SMEs included:
The business is too dependent on the owner
Commercial costs are too high
Processes are not documented
Business owner unwilling to spend time preparing for a sale
A lack of potential buyers
The company is not getting a reasonable return
The owner has unrealistic expectations about the value of the business
So what can You do to maximize the value of your business and the ongoing income streams you might be looking for?
You need to develop your business exit plan by making sure that it is integrated into the strategic plans of your business. You need to get involved with yourself, your family and your staff. Most importantly, you need to plan ahead.
At Superb Coaching, we focus on the implementation 7 key strategies for our customers.
First and foremost, we ensure that our clients have an up-to-date business plan that is implemented. We then address the issue of the Business Exit Plan.
Does your company have the right structure supported by a culture of leadership and team development that drives business goals?
Do you have the right people in the right seats on the right bus? Are the lines of responsibility clearly defined and followed? Does the company have individual dependency points?
Do business systems support operations? Are they used effectively and do they work with business processes? Are there effective performance measurement systems?
Are systems and processes properly documented? Are company policies and procedures up to date and understood by staff?
Does your company effectively apply relationship management to select partner companies to grow your customer base? Are there opportunities to attract better qualified customers and increase turnover?
Your success in the market will depend on how the market perceives what your business really is. Recognition of your position can only be achieved by ensuring that your business is fully aligned with that position in everything it does.
Yes, profit, turnover, financial ratios and asset values are also essential, but these are usually what are called “lagging indicators “. They only tell you about what happened in the past, about the history of the company.
To maximize the value of your business, you should also pay attention to demonstrating the “to come up “ business potential. This is achieved by measuring “the main indicators“.
Adopt it 7 key strategies and you can rest assured that you will realize the future potential of your business.
Now your business is really attractive to a potential investor or buyer. They have the assurance of past performance and confidence in future capabilities.