Posts Tagged ‘exit plan’
The Evergreen Exit Strategy
December 30th, 2009
The Exit Strategy That Keeps Your Bags Packed
One of the many challenges in creating a viable exit strategy for selling off your business interests is how to determine the timing.
Its one thing to say you want to work until your 55 and then sell the business, but it could be quite another to actually have a motivated buyer show up willing to pay your price.
So I propose the evergreen exit strategy whereby the business is always up for sale in a figurative sense i.e. there is no permanent for sale sign sticking out of the lawn or hanging from the side of the building.
With an evergreen exit plan, the business owner has developed the mind set that he or she cannot control when the best time is to sell, so they have to focus on what they can control, which is making sure everything in the business is up to date and supportive of a potential sale, and making sure that the day to day actions of the business are directed towards increasing the overall value of the business.
This mind set is not easy to develop as many business owners are more locked into the thinking that they will sell at retirement, period.
But an evergreen mind set always allows for the ability to consider and react to any opportunities that may arise at any time.
Think of it this way. If you’re 10 years away from your expected time of exit and a highly motivated buyer comes along for some reason and wants to offer you considerably more for your business than even you think its worth, would you not want to seriously consider any potential offers that interested party is prepared to make?
Even if you develop the proper mindset, there’s still some work that needs to be done to allow you to even seriously consider opportunities that may arise.
First, the business must maintain what I call a “sell-able” state of being. There has to be a continual effort to make sure that the financial statements are up to date, that all equipment and facilities are in a good state of repair, that regulatory issues or legal issues are dealt with quickly and not left to linger, that employee, customer, and supplier contracts are up to date, that the business has developed sufficient management depth to allow profitable operations to continue once the owner is gone, and so on.
If your business can’t stand up to the due diligence process of the prospective buyer and his or her advisers, then any opportunity that does materialize may just as quickly pass you buy.
Second, the business owner(s) has to be prepared to look at any opportunities quickly as motivated buyers don’t tend to stand still very long and could very well move on to the next best option.
Following this strategy also doesn’t require you to do anything if you don’t want to, or don’t feel the benefit is sufficient to sell. What it does do is allow you to be as opportunistic as you want to be.
Over a period of 10 to 30 years, the future is going to be very hard to predict. So when opportunity comes knocking, it may very well be worth opening the door and seeing what’s on the other side.
Business FinancingBusiness Finance Priorites For 2010
December 29th, 2009
Here Are Some Business Finance Priorities To Consider For the Coming Year
As 2009 draws to a close 2 days from now, we need to start focusing on the year ahead.
Here are my business finance priorities for 2010. They may be a bit different from business to business, but all should apply to any small or medium sized business that is operating as a going concern.
Priority #1. If you rely on external capital or investor capital to operate or grow your business, make sure that you spend time every quarter assessing your available sources of business financing in the market place. Regardless of what you’ve been hearing, the recession and its related effects are far from over. There are going to be more bank failures and more unpredictable lender policy shifts as everyone continues to ride out the storm in 2010. Even if you are in solid financial shape with your sources of capital, they themselves may not be doing as well and could drag you into cash flow issues you didn’t expect and could not predict. So make sure you always have your options up to date.
While this is perhaps a bit paranoid, the reality is that sourcing replacement capital can be very time consuming and untimely, so its better to keep up to date with the market than ignore it altogether. Spending some time in this regard 3 or 4 times a year may also uncover competitive financing opportunities that you can take advantage of which you would not otherwise be aware of.
Priority #2. Set one or two goals to improve your cash flow management. This can range from negotiating better supplier terms to following up more often with customers that are slow to pay their account. While you can’t save you’re way to prosperity, an analysis of company expenditures may uncover some areas where costs could be reduced or eliminated. Depending on the size of your business, doing this type of exercise just once a year can potentially pay for all your external accounting and finance related services.
Priority #3. Do some work on your business exit strategy. Even if you don’t plan or expect to exit the business for several years, there is no time like the present to start figuring out what a potential exit will look like, what needs to be done in the business to increase the value of a future sale, and what areas of the business records, systems, contracts, etc., need to be upgraded or improved so that the business can work towards being in a more “sell-able position”. When the day comes that a buyer and his advisers want to perform their pre-closing due diligence, you want this process to support your selling price and not uncover negatives that create price discounts or even kill a good deal altogether.
Spending some time each year on an exit strategy also helps make sure that what you’re doing in the business today is aligned with increasing enterprise value for time of exit. If the current strategy does not support this, you may be working at generating returns today that work against maximizing the value of your future business sale.
These priorities really do apply to all businesses in some way or another. Consider how each may be used to reduce your risks and improve your returns in the coming year.
Business Financing