Exit planning provides the road map to control your own destiny; to successfully sell your business and transition to the next stage of your life.
“If you don’t know where you are going, you will wind up somewhere else!” Yogi Berra
An exit plan helps to establish realistic business, personal and financial goals with a path to achievement. Your desires in these three aspects of your life must be consistent. Like a road map, you need to know where you are before you can determine where you are going.
A good exit plan begins with an assessment of your current financial situation, a baseline business valuation, and the value of other assets you own. To establish longer-term goals such as how long you intend to own the business, what you intend to do after selling it and to whom you would like to sell the business (children, employees, third party). This information lays the groundwork for that determines your future financial needs.
Here’s an article that further talks the need for an Exit Strategy for your business:
7 years ago, TVG represented a seller who was anxious to sell his business so he could enjoy the fruits of his labor.
Like most sellers he had a number in mind he wanted for the business and wasn’t too keen on the deal structure so long the purchase price matched the desired asking price. We were able to secure a buyer who offered the seller the number he wanted, however, it included a significant amount of seller financing. Despite our urging for the seller to consider slightly lower offers with more guaranteed upfront, the seller decided to take the higher offer with substantial seller financing.
Everything was going great for the first few months and about six payments in, the payments stop and the buyer was in default.TVG client spent eight months and over $100,000 in litigation costs to resume control of his business, which by then revenues were down 50%.
The TVG client worked hard to reestablish his business and slowly built the business back with revenue and cash flow stronger than before. TVG successfully helped the client sell the business again.
- Strongly weigh the cons of a deal financed 100% by the seller
- Trust your gut in judging the character of a potential buyer
- Sometimes in life things don’t go well, it takes grit to survive
To ensure your business is healthy and ready to sell, it is important to reduce customer concentration by diversifying the client base.
It is a disadvantage when business owners focus all their energy on only their major customers. To ensure a healthy mix of customers business owners should build relationships with current customers while seeking new customers. A general rule of customer mix is any customer over 10% of the business is too big.
A diversified client base is beneficial to scalability, valuation and maximizing cash received at closing. Here’s an article that talks further about the mitigation of customer concentration:
You’ve made the decision to buy a business; now you must find the right deal.
The best business opportunities are found by using all or some of the resources listed below.
Traditionally, buyers seek multiple business intermediaries to locate and handle a business purchase transaction. Business intermediaries have access to databases for buyer-directed searches and often to opportunities in advance of other buyers.
Questions to ask when interviewing prospective intermediaries:
- Are they in a brokerage network?
- Do they use this network to buy and sell deals with other intermediaries?
- Are there other intermediaries within the network covering the same geographic area?
The business section of local newspapers and national publication sources such as The Wall Street Journal are good sources for business opportunity listings. The Internet makes searching for business opportunities infinitely easier and is the closest source of a centralized information. Professional connections such as a bankers, CPAs and attorneys can augment the pursuit of viable businesses. Databases with powerful filtering options make direct mail campaigns a new resource for buyers. More importantly than resources, a buyer must be ready. When the business type meets the requirements, do not waste time- act quickly and decisively.
The Vant Group represented the buyer in a Defense Contractor business acquisition.
The company recently secured a large new contract making it a perfect fit for the buyer. The seller accepted a purchase offer of $4.1MM.
Because the company financials did not reflect the revenue from the newly acquired contract, the bank returned a loan amount that was lower than the purchase price. The original offer was fair, and the seller needed that price to dispose of their debt and fund their retirement. Unfortunately, the buyer could not increase the down payment to fill the gap, so it looked like the deal was dead.
With 19 years and over 500 transactions, TVG had the experience to keep the deal alive. TVG structured a three-year term Consulting Agreement which provided payment to the seller for the difference of the sale price and the bank loan. In addition, the sellers were to share in any upside resulting from the new contract they secured before the sale.