What owners need to know
Exit planning for small and mid-sized business
As an entrepreneur and business owner you may have had thoughts about that inevitable day in the future when you will leave the business and enter the next phase of your life. You may be considering a traditional retirement, or perhaps you have a lifelong passion that you will now have time to pursue. Whatever your unique situation is, a successful Exit that meets your personal and business goals will require careful planning.
Here are some things you need to know:
A recent study by Business Development Bank of Canada indicates that 41% of entrepreneurs expect to exit their business in the next 5 years. Over half of those will sell the business to third parties (outside the family). This sudden wave of businesses going up for sale will create a market where buyers are increasingly selective and price sensitive. How will your business stand out in a buyers’ market?
Exiting your business will be complicated and time consuming as there are many factors to consider and manage to achieve a successful outcome. These include estate planning, taxation, legal matters, accounting, dealing with family, customers, suppliers, employees, investors, business brokers and so on. This can be distracting to the day-to-day demands of your business. Taking control of the process through careful planning will help you manage through the turbulence.
What is your business worth? The market will value your business based on its potential for profitable growth. Preparing the business by maximizing earnings growth in the years leading up to the sale and having a clear strategy for sustained growth will ensure a maximum valuation for the business.
You can expect potential buyers to be exacting in their due diligence, focusing on the profitability of the business, growth potential, and operational efficiency. The new owners need to know the business can succeed without you.
Exit planning is a 3 - 5 year journey, or longer, depending on the circumstances. Poor planning will translate into missed opportunities and a failure to maximize the value of the business to potential buyers.
Having an Exit Plan can help prepare you for the unexpected, such as sudden illness, that takes you away from the business.