Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Wayne Brown,
Virchow Krause & Co. LLP:
952.351.4625
wb****@***********se.com
www.virchowkrause.com
OVER THE NEXT 20 years, baby boomers are expected to double the ranks of Americans age 65 or older. If you are one of the more than 70 million people in this demographic, you may be faced with turning a lifetime of work building a privately owned business into cash.
As early as 1993, Cornell University economist Richard Avery estimated the baby boomers could transition as much as $10 trillion in wealth. According to Avery, the majority of boomer wealth is held in 12 million privately owned businesses, of which more than 70 percent are expected to change hands in the coming 10 to 15 years.
That means about 8 million businesses may be sold in total or in part as boomers seek to convert business value into cash. For their owners, these transactions may arguably represent the single biggest economic event in their lives.
If you have spent more time planning a recent vacation than planning the exit of your business, you’re not alone. Too often owners make the mistake of not preparing an exit plan and reviewing the value of the business in advance.
In a study by the University of Connecticut Family Business Program, researchers found the amount of time spent on planning the exit was a significant contributor to the transaction’s success. For those business owners wanting to get the maximum value and cash from their businesses, developing an exit plan and an understanding of the value of your business – how value is created and enhanced – is one way to increase the chances of achieving those goals.
So just how much time should you devote to developing a plan around the valuation and exit of your business? While there are no hard-and-fast rules, there are some guidelines and things to consider.
Let’s work backward. Although some businesses can certainly sell more quickly, it is reasonable to be prepared to offer your business to buyers for a minimum of 12 to 24 months. Your transition out of the business may stretch that period another one to three years.
Owners may want to begin the process in advance of a sale to take action steps to maximize the value of the business and the specific exit strategy. For example, one of the requirements for the business may be to increase management depth with professional management.
If that is the case, the time required to recruit and solidify the company’s operation may mandate a greater head start. Depending on how much time you want to devote to enhancing the value of your business, the process could be another one to three years for planning the exit.
Keeping all this in mind, you can easily see the benefits of starting your exit planning five or more years in advance of the time you might consider cashing out. This time will allow you to manage the company with an end in mind, and focus on creating the value you want to unlock in the future.
The time spent on planning, preparing and managing the exit of your privately owned business is a sound return on investment. So, don’t wait until you are ready to sell, to plan the sale. Like an exercise plan, the perfect time to start developing an exit plan is right now.
Business owners routinely develop strategic plans to guide operations and growth. An exit plan is simply a process for strategically thinking about cashing out. Like any business planning, the process requires asking questions to gain clarity and insight into objectives and challenges.
A comprehensive process will address a range of issues, some financial and some not, all having a bearing on the outcome of your exit from the business. Many owners find it is helpful to have someone independent assist them through the process, who has a view to the multiple dimensions involved with cashing out of a business where you may have spent 20 or 30 years of your life.
Either on your own or with an adviser, if you want to get started with an exit plan, you should create an agenda of critical financial questions. Here are 10 questions that every exit plan should seek to address:
Often these questions simply provide a stepping stone to very important, but often neglected, non-financial issues that intersect with the business and financial assessment. Non-financial issues include a range of interpersonal dynamics that affect your business.
For example, how equipped is the next generation to manage and grow the business? Or, conversely, is it better to bring in professional management to a business traditionally run by family members?
We are likely to see the unprecedented transfer of wealth from baby boomers seeking to cash out of privately held businesses accelerating over the next 10 years. As the wave of baby boomers exits these businesses, proper planning can greatly improve the probability they will cash out successfully.
