Business Exit Planning Starts with a Good Valuation

“You already spent years building your business, why not take the time now to make sure you are getting the most value for all your hard work”

As a result of Baby Boomer demographics, experts estimate that the next 15 years will entail the largest inter-generational transfer of private businesses in the history of the world.  Some of those business owners will wait until the last minute to sell or transfer their business and just take whatever they can get.  This is a risky strategy that usually results in something less than what the business owner was hoping for.  Other business owners will take the time to prepare an exit plan well in advance.  Their outcomes are much more likely to be in line with their expectations.  A good Exit Plan starts with two things:  1) a clear view of the desired end goal; and 2) a “stake in the ground” showing where you are today in relation to your desired end goal.

The end goal is often something like a dollar amount or a series of annual payments that the business owner would like to receive when he sells or transfers the business.  This amount is ideally enough to provide the standard of living that the business owner would like to have for the period of time that he expects to live.  For example, selling the business for $2,000,000 at age 68 would provide annual income of $100,000 for twenty years (or longer if interest is earned on the principal).

The starting point is a little more tricky.  Just how much is your privately held business worth today?  My experience with hundreds of business owner clients is that the market value of their business today is usually less than they think it is.  It’s always best to have an experienced professional provide an objective, accurate valuation.  It’s even better if your valuation professional has the experience and insight of a CFO because he can explain the key drivers of the value of the business.  There are a lot of people who can do a few calculations and give you a value for the business, but there are very few who have the business expertise to explain why the value is what it is and who know how to help you develop a blueprint to increase the value of your business in the future.  That’s what we do for our clients at Precision Valuation.

So if you are a business owner and you want to maximize the selling price of your business, start developing an exit plan well before you expect to leave the business.  And talk to an experienced business valuation professional to help you understand where you are today and how to get to where you want to be in the future.   You already spent years building your business, why not take the time now to make sure you are getting the most value for all your hard work.

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