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Exit Planning and Your Readiness

By Generational Equity

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Not long ago The M&A Source, an industry association established in 1991 to address the challenges faced by merger and acquisition professionals, hosted a webinar entitled “Buy, Sell, or Hold; The State of Owner Readiness.” The sole panellist in the webinar was Mr. Christopher Snider, CEO and president of The Exit Planning Institute. As you can tell from the title of the webinar, Mr. Snider shared a number of telling statistics about the state of mind most entrepreneurs have regarding the eventual exit from their companies.

According to Mr. Snider’s research:

  • 66% of business owners of privately held businesses are not familiar with all of their exit options.
  • 83% of the owners of privately held businesses have no written transition plan.
  • 49% of owners of privately held businesses have done no transition planning at all.

And despite these dismal statistics about being prepared with an exit plan, again, according to Mr. Snider:

  • 75% plan to transition in the next 10 years.
  • 48% plan to transition in the next 5 years.

So based on their cumulative research over the years, and based on our informal polling that we do at our M&A symposiums, it is clear that we have two diametrically opposite trends going on here: Business owners do little, if any, exit planning, AND a significant portion of them know that they will be exiting in the not-too-distant future. This is a very regrettable yet preventable situation and is really the reason we hold complimentary, no-obligation M&A meetings throughout North America. Research shows that over the next 10 years we are going to see a financial legacy transfer of unprecedented proportions as baby-boomer business owners exit their companies in record numbers.

Where To Start

But before a succession can occur, business owners need to conduct some basic wealth management steps. However, in this area business owners are also completely unprepared. Again, according the Exit Planning Institute:

  • 50% feel ownership transition plans require the company to remain profitable for plans to be properly executed, yet 86% have not taken on a strategic review or a value enhancement project.
  • 56% felt they had a good idea of what their business is worth, yet only 18% have had a formal valuation in the last two years.
  • 95% of M&A professionals believe business owners’ unrealistic expectations of company value are the biggest obstacle to sale or transfer.

The vital first step in any successful transition plan is knowing what your single most valuable asset is worth in today’s market. And this step needs to occur in advance of your decision to move on because if you need to implement value-enhancing strategies, you will need time for them to come to fruition. How will you gain an understanding of what needs to be enhanced? By having a professional M&A firm conduct a thorough evaluation of your company.

One of the unique features of the Generational Equity process is the REV, Roadmap for Enhanced Value. As far as we can tell, we are one of the few mergers and acquisitions organizations that in a systematic, documentable fashion, provides our clients with specific ideas on what they can do to enhance their value and improve their sale-ability. We provide this to every client, even for those that decide to go to market immediately after the evaluation because while we are in the market looking for buyers, there are steps that an entrepreneur can take to improve the business’ perception with buyers.

Here is what I would suggest: If you can relate to the business owner statistics listed above and believe that having an exit strategy makes sense but that you have none in place AND you have no idea what your company is worth, I suggest that you attend a Generational Equity M&A seminar. You not only will learn a great deal that will help you should you choose to develop your exit plan on your own but you will also have the opportunity to meet individually with our managing director conducting the meeting and ask him specific questions pertaining to your situation.

A special thank you to Christopher Snider and the great research that the Exit Planning Institute does into the critical topic of seller readiness.

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