A Business Valuation as Part of Your Business Exit Strategy
Start Your Business Exit Strategy with a Business Valuation
Most business owners’ goal of running a business and creating a profit is at the top of their minds. However, developing a business exit strategy is a vital consideration you make sooner rather than later. Unfortunately, many business owners overlook this until significant changes occur. Having a business exit plan as part of your total business plan would be best.
This is because an exit plan or strategy lays out how a business will progress. Without a business exit strategy plan, business owners and stakeholders risk encountering issues when the enterprise’s direction changes or a change in the owner’s personal life happens. Business exit strategies should incorporate all potential events-good, bad, or indifferent.
Regardless of when drafted, an exit strategy plan is strengthened by a certified business valuation performed by a member of the Business Appraisal FL|GA|HI team
Small business owners must create an exit strategy plan, as much of their wealth and retirement may be tied to their business. You will only create your retirement funds as a small business owner when you sell your business. Every small business owner needs an exit strategy in place. Our business valuation is the first step in exit strategies consulting.
What is a Business Exit Strategy?
An exit strategy is an exit plan that lays out how an entrepreneur will sell his or her ownership of a company to interested investors, children, key employees, management buyouts, or another company.
People often think of business exit planning as describing how a business ends. However, it also helps ensure that a company’s future state makes progress toward achieving long-term goals. These goals may include implementing new leaders, maintaining financial stability, or pivoting directions.
Knowing the value of your business is a critical first step in the exit planning process. You might have three different business exit strategies and knowing the business value is the first step in determining your best exit strategy.
Common Types of Exit Strategies
Potential buyers drive the business exit strategy steps. Whether your exit strategy is to a financial buyer, private equity, strategic buyer, management buyout, or family member, the proper steps must be taken, and strategic planning must be implemented. Taking the right steps stops the process from being time-consuming and leads to a smooth transition.
You can also read about a business appraisal for estate planning as part of our exit plan consulting.
Specifically, if selling a successful business, the plan will enable the owner to reduce their ownership stake in the company while maximizing profits. On the other hand, if the business is doing poorly, a solid exit strategy will help the business owner minimize their potential losses.
Either way, a proper exit plan should help any business — regardless of its finances — ensure future opportunities for the company.
What are the Parts of a Business Exit Strategy?
Specifics of an exit strategy vary by business. Regardless, these plans describe all steps needed to sell or close the business by considering the various stakeholders of the business, finances, market conditions, future growth prospects, and operations.
Additionally, all plans identify the true value of the business, which helps establish the company’s foundation in the future.
Why is a Business Appraisal needed to create an Exit Strategy?
A key component to drafting an exit plan is a certified business valuation. A valuation professional must determine the business’s value before any ownership transfer can occur.
An accredited or recognized business appraisal will ensure you will attract serious bidders, safeguard your investment, and maintain your position during negotiations.
Regarding business exit strategies planning, valuation tends to occur in two stages, resulting in two types of valuations: preliminary and complete.
A Business Valuation’s Two Stages
The preliminary valuation is the first stage, accounting for roughly 60% of the overall price. Although this stage does not include a written value judgment, it does lay the foundation for the whole valuation.
A complete valuation makes needed adjustments after analyzing all supporting data to result in a written report of your company’s value.
Obtaining an independent appraisal is important because it will establish the foundation for your future business plans — regardless of the possible buy or sell date.
Which Exit Strategy is Best for You?
Many business owners wonder which exit strategy is the best option. However, the ideal exit plan greatly depends on the type and size of your business.
Common exit strategies include:
A Business Sale to a Financial Buyer
A Strategic Acquisition by a Larger Company
A Family Sale or Family Succession
Initial public offerings
This is because the number of shareholders and founders in the company will impact the number of interests at hand and the subsequent choice of an exit strategy.
For example, a partner in a law firm might be best suited to sell their ownership stake to an existing partner. Meanwhile, a solo entrepreneur or small business might benefit from profiting as much as possible before selling through a business broker or the owner closing the business altogether (which none of the exit consulting firms would recommend).
Please read what you need to know about small business valuations as part of exit planning services.
What should I do to start on my exit strategy?
If you are hoping to establish an exit strategy, be prepared to gather various documents to proceed with your exit planning for your exit strategy consultant.
For a professional appraiser to be able to conduct their research, for example, you will need to provide specific data, paperwork, and financial information. The more current and up-to-date documentation you can offer, the more accurate of a business valuation you will obtain.
Some of the primary documentation you need for an exit planning company valuation includes:
Your current capital structure
Your financial statements over the last three years
Tax returns from the previous three years
Legal papers
Your supply chain or key vendor/supplier discussion
Organization chart with management team bios
Registration records
Your business plan
business model and growth strategies
due diligence
Succession planning
Current YTD balance sheet and Income statement
profit and loss summaries from the last three years
How important is your company legacy to you
Business Exit Planning Conclusion:
Establishing a proper exit strategy for yourself is vital for your business. Doing so will ensure that you can reduce your stake while maximizing profits whenever possible. Although an exit plan involves many components, obtaining a certified business valuation is a crucial part of it.
Your exit strategies may include selling your business to private equity, venture capital, management buyout, selling to your children, initial public offering (IPO), or transferring to a trust. We can value your company based on each type of exit planning choice. We also have expertise in the business sales process.
Consult BA FL|GA|HI team members today to start creating a business strategy for a smooth exit from business ownership on your terms as you begin the exit process. We want you to have a successful exit from business ownership.