Business Valuations for Exit Planning
Planning to exit your business can be a big undertaking. Exiting has big implications for your business, the assets, your team, and your taxes. Whether you are planning to retire or sell your business you will want to create an exit plan. Working with your legal advisor and a business valuation expert is key.
Business exit planning is sometimes known as business succession planning. Taking the time to plan can help maximize your financial return and minimize your tax liability when you exit. Planning now can also help should you die or become disabled before you plan to retire. Below we will briefly review several steps to exit planning.
Establish Owner Objectives
First, start by asking yourself the following questions:
- When do you plan on exiting your business?
- Do you plan to transfer ownership to a family member or employee?
- Or will you sell your business to an outside third-party?
- How much money do you want or need for retirement or when you are ready to leave?
These questions will form the foundation of your exit plan.
Determine the Current Value of the Business
The next most important piece of exit planning or succession planning is understanding how much your company is worth today. If you plan on exiting soon, will the current value support your goals and objectives for exiting? If not, create a plan to grow your business that will support the needed financial exit goals.
An objective business valuation through a qualified business appraiser can help you understand the value of your business. Peak Business Valuation, business appraiser Texas, loves helping small business owners with a business valuation. Keep in mind, the value of your business also depends on the structure of the transaction. For instance, selling to an employee or family member may have a vastly different structure than selling to a third-party. A business valuation can also help you understand how to grow your business to accomplish your exit goals.
Build the Value of your Business
A business valuation expert like Peak Business Valuation, business appraiser Texas, can help you identify and understand the key value drivers for your business. As you build the value of your business, you can ensure your exit strategy and goals can be accomplished. An objective appraisal can also help you understand and create steps to reduce the risk associated with owning a business. Specifically, a valuation expert can help you understand how to reduce business owner dependence. And identify steps to create a more sellable business. Using the business valuation, create a comprehensive exit strategy that helps ensure the continued success and profitability of the business once you leave.
Sell to a Third Party
If you decide to sell your business to an outside third-party, how do you find the right buyer? Once you have a qualified buyer, you will want to work with a broker, lawyer, tax accountant. They can help you structure the sale to maximize the after-tax return to the business owner. For more information see Choosing a Buyer for your Business and Structuring Business Ownership Transfers.
Transfer to a Family Member or Employee
Transferring ownership to a family member or employee is a much different process than selling to an outside third-party. One of the main differences is how you structure the transaction. Inside buyers often lack the necessary cash to buy the business in full or make the needed down payment on a loan. Seller-financing is often necessary for this process. However, with seller-financing, the business owner has a foot in the door until he or she has been paid in full. But, having continued owner involvement can help the sale and transfer be successful. For more information see, Transferring your Family Business or Transitioning a Business to a Key Employee.
Develop a Contingency Plan
Having a contingency plan is important should anything happen to you or the business before you expect to exit. Doing so can help protect the current value of the business and ensure the business can continue successfully if you are unable to run it. This plan can help others know what will happen to the business should the owner become disabled or pass on. This includes whether the business will be sold or transferred to an employee or family member.
Having a current exit plan in place for your business is just as important as having a personal will. The first step in that process is meeting with your legal advisor and obtaining a business valuation. Peak Business Valuation, business appraiser Texas, loves working with business owners as part of the succession plan and exit strategy process. We provide quality business valuations in nearly half the time of our main competitors. Schedule your free consultation below to get started!
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