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MEMBER BLOG: Exit Strategies for your Business

December 4, 2017

David Shapiro, Business Advisor and Intermediary, VR Business Sales, New Haven

Have you thought of an Exit Strategy for your business?

Starting and building a business is tough, but exiting can be even tougher.

Today and for the next ten years it is estimated that there will be more money devoted to acquiring small mid-market businesses than ever before in history.

Privately held business owners with planned exit strategies are going to be the primary benefactors of this activity.

Since businesses being passed on to the next generation are decreasing, new ownership structures will dominate the landscape. Those with a strategic plan in place will retain the greatest value for their ownership.

Incredibly fewer than 25% of privately held businesses have an exit strategy, formal transition or succession plan in place.  Since most businesses are dealing with the challenges of the present day, there has historically been an aversion to the complex task of preparing in advance for sale.

Owners of private, small-market companies, who are considering their sale, should execute the process with forethought and precision, sell for the correct reasons, have a clear understanding of the value, appreciate the credit and capital markets, and be prepared to deal with financial, operational, technical, and human resource issues during the transaction.

This is a daunting task for the owner or management team who should be concentrating on the operation of the company, not its sale.

Privately held businesses need the help of professional and knowledgeable advisors to aid in the creation of a plan that can be managed effectively and transitioned to the successor leadership of the enterprise.  An unprepared new management group, or even a poorly managed transition to competent management can cause significant loss in value. 

One of most important steps in preparing an exit strategy is understanding the value of one’s business.

A business at any time can benefit from having an opinion of value preformed for them. From an operational perspective, many business owners have no idea what their asset is worth. An informal valuation can teach management what drives value and ways to increase short- and long-term cash flow. Furthermore, a valuator can shed light on economic conditions and industry trends. This knowledge can improve operating efficiency and, ultimately, increase sales proceeds when the time comes.

Understanding business value is also an important part of contingency planning for a key person life insurance, buy-sell agreements and succession plans.

When it does come time for the decision to sell one’s business, maintaining confidentiality is crucial to a successful transaction.

Your business depends on the continuity and trust of your staff, customers and suppliers alike to keep your business running smoothly. Knowledge of an upcoming sale can undermine this trust and result in an unwarranted disruption to your business at a time when it is more important than ever to present a well-functioning business to prospective buyers. When employees, competitors and others find out that you intend to sell your business, the consequences can be extremely negative. They can go well beyond simply putting the sale of the business at risk.  Creating confidentiality and protecting from the possibilities mentioned above during a sale is of the utmost importance.

Again, a professional and knowledgeable advisor can create a confidential, comprehensive marketing process that is designed specifically for selling a business quickly, efficiently and at maximum value while prescreening for qualifying buyers and providing guidance throughout the entire sales & transaction process.

David Shapiro is a Business Advisor and Intermediary with VR Business Sales in New Haven. VR represents owners of businesses with annual revenues from $1 million to $30 million. The office provides business valuations and exceptional merger and acquisition (M&A) advisory services to companies operating within a wide range of industry segments in Connecticut, Southern New England and Metro NY.

Visit VR Business Sales New Haven website, vrnutmg.com or email David Shapiro via this link to BRBC Business Directory.             

12.4.17