When is the best time to plan an exit strategy for your business? The most successful businesses include this as a section of their original business plan. By examining and including an exit strategy during the inception of a new business, you are incorporate the planning principles required for success in today’s market place. If you have had the experience of starting a business from ground zero, this is the best possible scenario. If you find yourself in the position to not have done this, or find yourself running a business that did not include this as part of its planning, take heart because it is never to late to start the process. You can begin today to take the steps necessary to ensure maximum value when it is time for the sale of your business.
Compare selling your business with selling a house. These two transactions vary greatly, but they also contain similarities. For most people entering into a home purchase there were two goals, shelter and a financial gain when the home is sold. For a person starting a business, there are two goals, immediate income and financial gain when the business is sold. Both investments start out as a way to fill an immediate need. They also have a long-term impact on your financial health.
Once you have decided to place your home on the market, you go through the obvious steps required to maximize your ability to realize a financial gain. Some of the things you might do are apply fresh paint, hold a garage sale to limit the amount of clutter in the home, weed the gardens and clean up the yard. These actions can enhance the immediate curb appeal, but these last minute strategies do not add a substantial amount to the value of the home they merely remove obstacles that could get in the way of selling it. In the sale of a business, you go through a similar process. You take steps to ensure that any real estate in the transaction shows well, you review your business inventory to ensure it is at the appropriate levels, and you review your accounts receivables and payables to ensure that they are proper. These strategies can enhance the immediate appeal of the business or remove minor obstacles, but they do not add substantial value to the business.
The increase in the value of your home comes from the long range planning you have done. This includes purchasing in a neighborhood that has maintained value. The investments you have made in your home including kitchen remodeling, bathroom refurbishment, renovations and additions. These planned actions are what will lead to the most dramatic return on your investment.
This is where the comparison between home sales and the sale of your business are most in synch. The long range planning and strategy you employ in running your business will have a direct correlation to the final return you achieve. The manner in which you have managed your business from its initial inception to the final stages of the sale have a direct impact on the ultimate value realized at the time of sale.
If you are currently running a business that has not included a sales strategy as part of the planning process, it is not to late to incorporate this into your business plan. The same long range planning required to maximize the return on the sale of your business also impacts the current profitability of your business. It requires business owners to face their mortality and take immediate steps to ensure that, should an unplanned event or opportunity come along, the company is in a position to survive and prosper.
If you believe that this type of planning will benefit your company, but are not sure on how to proceed, there are many options you can follow to assist in this process. One option is to obtain assistance from outside of the organization to begin positioning your company. An outside firm can be retained to assist in identifying the current status of your company and the development and deployment of a long-range plan. The following details how a business enhancement firm could be used to assist in this process.
For the sake of this article, XYZ Firm is a business that specializes in strategic planning and profit enhancement. They assist companies that are contemplating the process of selling. XYZ Firm has determined that they can provide the greatest benefit when they begin assisting their clients two to three years prior to the company being placed on the market. Upon being retained, XYZ Firm will take your organization through the following process.
Phase I – Company History & Overview
To facilitate the process, XYZ FIRM will need to know as much about your organization as possible. Prior to arrival on site, you will be asked to prepare a summary document detailing the history of your company and outlining what you perceive to be the areas of concern to be addressed.
This summary document should contain your current and past three years of financials and balance sheets. Additional attachments should include any other programs, which currently exist and are in use (business plan, sales plan, budgets, etc.).
The most important step in this phase is the profiling of personal and corporate goals. The importance of this subject is so essential that it is deserving of much more dialogue than this space allows. In summary, it goes something like this; the personal life goals of all owners and related parties needs to be defined, refined, and in some cases, negotiated. Those goals then have to be aligned with the corporate goals, vision and strategy.
Phase II – Data Collection
During this phase, an initial consultation is performed. Your company is examined at all levels. The examination is broken up into four basic disciplines:
• Accounting
• Sales & Marketing
• Operations
• Organization (This area includes human resources & upper management.)
Depending on the complexity and size of your organization, this process can require two days up to two weeks to perform. During this phase of the process, information is gathered to create a written assessment and action plan.
Phase III – Strategic Plan Review
The information collected in phase one and two is processed. A written strategic plan is generated. This plan will typically contain the following:
• Current assessment of the organization's strengths and weaknesses.
• Response to each of the key points outlined in the corporate history document.
• Written action plan for corrective action and growth for the future.
• A section detailing the best way to position your firm for maximum value and ease of transfer.
The assessment of the organization creates a baseline detailing the current status of the organization. This report details the strengths and weaknesses of the organization. The report also contains a response to each of the factors you identified as being critical to the
future of your company in the summary document you provided. The remainder of the report deals with an integrated action plan to correct any deficiencies noted, and provides a roadmap for future profitable operations and growth.
This report will be presented during a scheduled meeting with you and the key staff members you select to be present. The meeting will be divided into two sections. During the first portion of the meeting, an abridged generic overview of the strategic plan will be presented to the entire staff. After this portion of the meeting is concluded, all members of your organization will be dismissed for the day with the exception of the owners. At this time, the second portion of the meeting will take place. It is during this phase that the complete strategic plan will be discussed and arrangements for the future involvement with XYZ FIRM will be made.
Phase IV - Implementation
Based on the level of service selected by your firm, XYZ FIRM will begin working with you and your staff to implement the action items outlined in the strategic plan. At pre-set time intervals, follow up meetings will be held to gauge the progress of the organization.
Phase V – Annual Status Review
Members of the XYZ FIRM staff will meet with your company on an annual basis. The objective is to assist with maintaining the strategic plan and keeping it current.
Fee Structure:
The cost for this service is generally based on the volume of business your company handles. In most cases, Phases I, II & III are handled by charging a flat fee which is negotiated in advance. In the case of an extremely complex plan, these charges may be based on time and materials rate. Fees for additional follow up services to assist in the implementation of the plan and annual reviews are determined after the strategic planning phase is complete. These fees are based on your company’s requirement for assistance to deploy the plan.
Please remember the following points if you are contemplating a sale or transfer of your business.
• The ideal time to start planning for the sale or transfer of your business is at the same time the initial business plan is being written.
• Strategic planning for an exit strategy increases the overall value of the business and helps to ensure longevity.
• The ideal time frame you should begin working on the sale of your business is two to three years prior to placing your business on the market.
• Utilizing a firm that deals in business enhancement and understands how to position a business for sale or transfer will provide an exponential return to the amounts paid in fees for the service.
• It is never too late to start this process!
Michael Coleman is a Business Development Strategist with Dillon Schramm Associates, Ltd. the Midwest office of VERCOR. He received a degree in Business Administration from the University of Kansas and numerous designations.
