Exit planning is how business owners prepare to depart from their private company and maximize its value through a merger or acquisition to increase shareholder value or transition the company to serve other objectives. It basically arranges for you to leave your company on your own terms. Unfortunately, many business owners do not recognize the value in professional exit planning because they do not see their company from the perspective of a potential buyer, resulting in significant loss of value when exiting the business.
A solid exit plan clearly defines the business owner’s objectives, and lays out a comprehensive strategy that accounts for all personal, business, financial, legal, and taxation aspects of reaching those objectives, including leadership succession and the future of the business. These objectives include the maximization of value, mitigation of risk, conducting an expedient transaction, and finding the right investor to take over the business in its best interests. The strategy may also cover worst-case scenarios, such as illness or death of the business owner. Quality exit planning usually should take place around 10 years prior to transitioning the business, to allow for value strategies to flourish.
Why It’s So Important
According the Exit Planning Institute, the average business owner has about 80 percent of their net worth tied up in their company. (Yes, there is an Institute for it, so exit planning must be important.) Your business is your biggest asset. A professional exit planner will help you grow that asset and make it more valuable to potential buyers. Even though it’s so important, a whopping three quarters of business owners do not have an actual exit strategy. Granted, it is easy to get caught up in running the day-to-day of your business, making it understandable how planning for the future can get put on the backburner.
While we understand the demands of running a successful company, we also understand that you may be incredibly adept at it. However, this doesn’t mean you are going to be an expert at planning your exit. In fact, most business owners are not. Only 20 to 30 percent of businesses sell when they go to market. And when they do sell, 75 percent of owners are unhappy with the result because they didn’t have a well-coordinated exit plan in place. Don’t be part of that statistic.
A solid exit plan ensures that you will minimize losses in a sale and that you have the means to live the lifestyle you’re accustomed to. This means your plan must go beyond a half-baked idea that merely lives in the back of your mind. It is crucial that it becomes a concrete strategy that is mapped out on paper. This protects you and your greatest asset in the event of the unexpected.
Exit planning is also important for another very important reason: company valuation.
Again, according the Exit Planning Institute:
- While half of business owners believe that ownership transition plans require the company to remain profitable to work out, 86 percent of them have not conducted a strategic review or a value enhancement project.
- While more than half of business owners feel they have a good ideaof what their business is worth, only 18 percent have had a formal valuation in the last two years.
- 95 percent of M&A professionals believe that business owners’ unrealistic expectations of company valueare the biggest obstacle to completing a transaction.
For your exit plan to be successfully executed, you need to realistically understand what your business is worth in the market—and obviously you want that to be as much as possible. Value-increasing strategies take careful planning and need time to reach fruition. This is why having an M&A partner can be a major game changer in the future for your company and your family.
At Benchmark International, our award-winning team of M&A analysts is ready to help you with effective strategies for the exit or sale of your business. Even if you’re not sure about selling at this time, it’s never too soon to start the conversation about planning for the future. We look forward to getting to know you.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.