Merger & Acquisition Insights

Exit Planning – Three Things Owners Often Miss

Posted on December 15, 2020 by admin

As we sat in Ken’s office (not his real name) discussing the recent sale of his business, I asked him what he had learned from the process. Ken shared that he had spent years wandering down specific exit paths, not getting holistic advice. “I ended up spending several years and hundreds of thousands of dollars trying to determine how I would ultimately sell my company. It was an expensive mistake, but the wasted time probably frustrates me more than the money.”

In the end, Ken was in the “fortunate minority.” He experienced a positive outcome in spite of many initial missteps on the road to a successful exit.

So how does an owner distill an eventual exit down to practical, manageable steps that will allow them to monetize their life’s work without misallocating resources?

Know Your Value Drivers

Positive value drivers contribute mightily to increasing your company’s financial margins. Accounting and finance measurements, operational elements, customer and supplier considerations, and your key employee attraction, performance and retention plans are a few important value drivers that can significantly enhance profitability.

Other factors such as your mission and vision, technological capabilities, legal and risk management strategy, and approach to sales and marketing will be assessed by potential outside buyers. Before you go to market, understand the impact your current strategy will have on your ability to generate additional free cash flow which directly impacts valuation. Have an implementation system and accompanying budget that will properly correct deficiencies you uncover.

Understand Plans Versus Systems

Good owners plan, but great owners have systems that seemingly perpetuate their business without demanding the owner’s day-to-day micromanagement. If you find yourself continuously putting out fires rather than focusing on strategy, then it’s time to evaluate whether or not you have good systems in place.

For instance if there is no one in your organization you can point to as a clear successor to your job function, then you may have a significant problem relative to organizing a potential sale. Designating a clear successor for your role doesn’t necessarily mean you intend for this person to buy the company (although it can), but rather it means that you have replaced your role with someone of equal or better competence that a potential buyer can rely on to seamlessly oversee and manage the organization in your absence.

Prepare to Adjust Your Calendar Time

If you have improved your organization’s key value drivers and empowered your senior management team to actively oversee operations without your persistent day-to-day involvement, then this should naturally create more personal free time on your calendar so you can focus on marketing your business for sale.

You will need this free time to allocate your energy to conversations with all members of your advisory team. The succession and exit process is filled with meetings that involve many financial and legal decisions that you have likely never encountered. Having ample uninterrupted free time will significantly lower your personal stress level since you will be able to think clearly and make prudent decisions.

Jeff Janes is a registered representative of Lincoln Financial Advisors Corp.

Securities offered through Lincoln Financial Advisors Corp., a broker/dealer. Member SIPC. Investment advisory services offered through Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances. CRN # 3351162-120120

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