Last month I was one of three presenters at a Lunch & Learn for business owners. The content focused on maximizing the value of one’s business, either in preparation for sale or exit, or as part of a growth strategy. Along with two colleagues, Ken Galecki and Rick Arthur, we shared our expertise for takeaways to apply immediately and longer term, as owners navigate the best ways to build business value. Here are some of the highlights of what we covered.
Exiting Your Business
Ken Galecki, Principal, Exit 360 Business Brokers, www.exit360brokers.com
Of more than 25 million privately held businesses in the US, about 70% are expected to attempt to sell in the next ten years, but only 20-30% of listed businesses will actually change hands. This illustrates the level of competition you may face when you exit your business and the clear need to prepare.
One of the first decisions you need to make is how you plan to exit. Here are some of the most common ways to transition your business:
- Pass or sell to an insider – a family member or key employee(s).
- Sell the business to a third party.
- Close the business.
You’ll also need to get an accurate determination of the current value of your business and what your business must be worth when you exit, to meet your financial needs as you go forward. Your exit strategy will be built around reaching that value.
Regardless of when you plan to sell or exit, every business owner should have an exit strategy, sooner than later. Put together a group of credible, trusted advisors with specialties in areas that are applicable to your business. Consult with them regularly to help keep you accountable to yourself and your plan and help you recognize when you may need to make changes.
Financials
Rick Arthur, CFO, www.cforickarthur.com
Maintaining and building business value is key to a successful exit. Be sure you know the primary financial drivers of company value:
- Consistent revenue growth
- Strong profits
- Healthy cash flow
Accurate and timely financial statements and a thorough understanding of them is essential. They equate to a scorecard of the performance of your business, letting you know where you stand and keeping you on track, as well as informing business decisions. These are the foundational documents to which you should be especially attentive:
- Income Statement or Profit & Loss Statement
- Statement of Cash Flow
- Balance Sheet
- EBITDA Calculation
Every business also needs a profit plan which includes both your operating and capital budgets to help set and achieve your business goals. Start by reviewing your income statements by month and update your budget at least annually, preferably quarterly. And to keep your doors open, you need cash, so learn to implement cash flow forecasting.
Value Drivers
Bob Zarlengo, RJZ Inc., www.rjzinc.com
Maintaining and building the value of your business is the foundation of a successful exit, whenever that occurs. Knowing and addressing the value drivers that affect your business is how you’ll move forward in attaining the value you’ll need when you exit. These are the eleven most common business value drivers:
- Stable, high-performing workforce
- Systems that sustain the growth of the business
- Diverse, stable customer base
- Good facility appearance
- Realistic growth strategy
- KPIs/effective and documented financial controls
- Business overview – legal audit, banking relationship, etc.
- Financial growth – cash flow, profitability, revenue, low debt
- Attractive business sector
- Protected technology/IP
- Having an exit plan
Review the list and choose the value drivers you can readily identify that apply to your business. Pick three or four value drivers that need attention and prioritize those. Aim to spend an hour or two a week working on your value drivers. As you get areas of your business in order, move on to other value drivers that may need attention.
All owners will eventually exit their business and as we’ve emphasized, planning sooner than later is essential to exit successfully. Feel free to contact me, Rick Arthur, or Ken Galecki if you have questions or need assistance in any of our areas of expertise. Please also get in touch if you have an interest in being informed about future Lunch & Learns or workshops. If you’re planning your exit or interested in getting started, consider joining my Exit Planning Peer Advisory Board. It’s one of the most efficient and effective ways to grow your business and prepare for your future.
Bob Zarlengo is a certified exit strategist and CPA. More than four decades of experience in public accounting, expertise in financial reporting, income and estate planning, and tax compliance makes him a valued and trusted advisor to his clients.