Business Exit Planning: Start Early, Focus on Growth
Creating a vision for your business is the first step to transition planning, and so early on it makes sense to set exit goals.
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Hancock Whitney Financial Planning
When you start a business, one of the last things you’re probably thinking about is leaving it.
You’re in survival mode. You’re focused on paying the bills, buying more equipment, adding staff and a host of other issues as you establish your enterprise.
Exit planning? Really?
Granted, it may not be top of mind, but here's what we tell business owners: The worst thing you can do is wait until you’re a year away from exiting to start planning. And the best thing — to get everything you want out of your business — is to begin planning for your last day on day one.
Visualize Your Future
Creating a vision for your business is the first step to transition planning, and so early on it makes sense to set exit goals.
What do you want from your business? Are you looking to build it up, sell it to a private equity group and retire, or sell it and start another business? Do you plan to eventually sell the business to a partner? To employees through an employee stock ownership plan (ESOP)? Or maybe pass the business on to your children?
And what’s the time frame for your exit? Five years from now? 10? 25? 40?
If you develop a vision for your business and your future, every day you know what you’re working toward.
Implement Strategies to Drive Growth and Value
No matter which exit path you choose, executing strategies to grow the business will be critical to success. Here are just a few ways you can drive business value years before you depart:
▪ Develop a deep management bench. If you are the primary manager of the business, and no one on your team is prepared to fill that role when you exit, no external buyer is going to be interested in buying your business.
▪ Build a diversified customer base. You don’t want one customer representing more than 10% of your income.
▪ Establish a sustainable model for improving cash flow year after year. For example, we have a client, a roofer, who sells roofing maintenance contracts to his new customers. If they pay an additional fee, when maintenance needs arise after installation, the roofer sends someone out to make repairs at no extra cost. These contracts have produced a loyal customer base and a large referral business.
▪ Institute credible financial controls. Potential buyers will be more comfortable if you have audited financial statements.
Do a Business Valuation
Even before you are seriously thinking about exiting, it’s smart to have a certified business valuation specialist calculate the value of your business — for two reasons.
First, if you are planning to retire on the proceeds from selling your business, it’s important to know what your business is worth. That way you know how much you must grow the business’s value before it’s time to sell.
And, second, you never know when you might get a call from a private equity group making you an offer. Without a business valuation in hand, how can you evaluate that offer?
Keep Your Eye on the Prize
Engaging in business exit planning early in the life of a business may not seem like the natural thing to do, but it’s the wise thing. From Day One, develop a vision for your business and your future. Set goals. Always be working on increasing the business’s value. And find out how much your business is worth, which will inform your growth objectives and make you nimble if buyers come calling.
Ready to start planning? A Hancock Whitney wealth advisor can walk you through a 20-question survey — the Business Exit Readiness Index — to jump-start a discussion around your exit plan.
The information, views, opinions, and positions expressed by the author(s), presenter(s), and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.
This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.
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