Selling your company?

Make it your business to have a sharp competitive edge.

April 25, 2012   by Stephen Shaw and Glenn Fraser

Thinking of selling your company? It’s a buyer’s market out there so have a solid exit plan. And don’t assume many successful years in business will be enough to net the best results. That was the case when a new entrepreneur who, when the time came to sell, did much better than the owner of a long-established business.

Taylor had only been operating her beverage processing business for four years while Rae, the owner of a similar but larger enterprise, had been running the company successfully for more than 20 years. Both owners wanted to sell their operations – Taylor to free up capital to launch another enterprise and Rae to retire.

When a purchaser expressed interest in buying a beverage processing operation, Rae was still in the “thinking through it” stage while Taylor had a detailed plan regarding what she wanted, what she could offer a purchaser and how a transition would unfold. In fact, Taylor was so well prepared that the sale of her business was completed within just a few months and, having received her asking price, was on the way to launching her next enterprise.

Business owners who have focused for many years on maintaining a competitive edge often ignore their most important advantage – optimizing returns from exiting the business. Bear in mind the buyer’s market will likely continue for decades as a stream of baby boomers sell their companies and retire.

Getting the best terms

Even if you don’t intend to leave your business for several years, creating a plan now gives you more options. You have time to properly structure your operation as an investment, groom a successor, build value and capitalize on tax opportunities.

Here’s what’s involved in developing an exit plan:

1. Clarify needs and objectives. Align personal and business objectives, establish an appropriate time frame and ensure expectations are achievable and objectively assessed against market realities. Clear goals are the foundation of an effective plan. Do you want to pass the company along to family members or key employees, or sell it to the buyer who offers the best price? Do you want your loyal workforce to be retained? What financial returns do you expect? Do you want to be involved in the business following a sale? What do you need to enjoy the retirement you visualize? What are your wishes for your estate? What is your preferred time frame for a transition?

2. Integrate relevant personal and business strategies. Determine what needs to happen to achieve your goals. Review personal and family needs, retirement, succession, estate, contingencies, taxes, insurance, legal, risks, business structuring and business value. Exit planning also helps to attune the advice of advisors, ensuring their recommendations are consistent with goals.

3. Address business value. Enhancing the value of the owner’s business is key to the success of an exit plan. Potential purchasers typically expect to see healthy cash flow and earnings, but they often have other expectations, which the planning process will identify. These may include:

  • A strong management team
  • An effective employee retention program
  • Accurate, accessible actionable, and timely financial records
  • Documented processes and systems
  • Up-to-date articles of incorporation and tax filings
  • Cost controls
  • Manageable debt
  • A solid customer base
  • Strong inventory turnover
  • Facilities in good repair
  • Equipment in good working order
  • Up-to-date and relevant marketing and sales strategy
  • Well established and respected brand within the specific market

An exit plan also details what needs to be done, when and by whom. Every dollar of profit yields up to three dollars of proceeds in a sale. Taking more time to build value strengthens the performance of the operation. Knowing what will drive value maximizes it. Exit planning involves estimating a value range for the business and identifying the elements – such as financial management, benchmarking, and human capital.

4. Document an action plan. It details steps, timing and responsibilities. This provides an opportunity for a business owner to share the plan with all of the stakeholders. The plan also serves as a tool for communicating expectations and measuring progress.

Taylor’s exit plan proved to be a significant advantage in attracting the right purchaser. The buyer was particularly impressed by strategies outlined in the plan that addressed how the business model could continue expanding post transition.

A well-defined exit plan provides benefits that extend well beyond the financial rewards of selling the company. It will simplify your affairs, provide clarity to everyone involved, reduce stress – and help you realize your dreams.

Stephen Shaw is the national and regional leader of MNP Corporate Finance Inc. Glenn Fraser is the leader of the GTA region Food & Ag Processing practice of MNP.

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This article appears in the April 2012 edition of PLANT.

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