"I want to sell my business in the next 1-2 years..."

Many baby boomer business owners are thinking they "are ready" to leave their business in next 1-2 years and begin their retirement or third act in life.  With the economy growing and the number of investors seeking quality businesses to buy, many are thinking it could be an opportunity to "sell high" and accomplish their financial goals.

If indeed there is a desire is to sell within 2 years, and minimal or no exit planning and pre-sale due diligence has been achieved to this point, following are a number of the key planning issues that should be addressed in the first 60 days:

• Establish owner-based exit goals (desired buyer, sale-price, values-based goals, etc.) and do whatever possible to prepare for life after the sale. Survey data indicates most business owners are not happy in life two years after the sale of their business.

• Select a transaction intermediary (Investment Banker or Business Broker).

• Get an estimate of business marketability and value.

• Begin tax planning and pre-sale due diligence.

• Assess and, if possible, enhance business value drivers.

• Take steps to protect the value of the business during transfer (i.e., employee incentive plans/stay bonus).

• Select the remaining needed members of your Deal Team (i.e., CPA, M&A Attorney).

• Review your estate plan and business continuity arrangements.

• Make decisions pertaining to a plan for communicating your plans to employees.

This is not an exhaustive list and only represents what should happen in the first 60 days.  There is much more to do throughout the 2-year period to give yourself the best chance at a successful exit.  So, an immediate priority should be the selection of a trained and experienced Exit Planner to assist with the management of the exit planning project.  Typically someone is going to engage a knowledgeable project manager or general contractor to manage the process for building their "dream house".  In selling a business, there is much more at stake than building a dream house.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

What's an "Earnout"?

The term “earnout” is often mentioned by an advisor or business owner when describing the terms of a business sale. If an owner has as part of their deal an earn-out, they have been asked by the buyer of their business to stay on for a specified period of time in a senior leadership role within your acquirer’s company. In this role, they will be charged with achieving a set of goals in the future (i.e., revenue or profitability goals) in return for additional compensation for their business. This approach is used when the successful operation of the business being bought is dependent on its owner, and/or the buyer needs to bridge the gap between what they are willing to pay for the business and the amount of money the owner wants for the business.

Earnout terms average somewhere between two and three years in length and are very common in service businesses. The assigned earn-out goals are often linked to revenue and profit, the retention of specific accounts or customers, or any other metric that the buyer considers important and the seller is willing to agree to.

Earnouts at times can work extremely well for both parties. At the same time, all too often it doesn’t work out with the selling owner leaving prior to receiving their earnout. A common reason for an owner leaving early would be the fact that they are now an employee of the company they have invested years in building, and that can be a very difficult adjustment.

We talk a lot about planning to exit “on your own terms and conditions”. Leaving on your own terms and conditions might look like not being forced into an earnout when you sell. If you begin planning your exit well in advance, you can think through what roles you would be willing to play when you leave (i.e, lender, employee, shareholder), and which roles you wouldn’t be willing to play. For example, if there is just no way in the world you’d ever want to be an employee of the business you’ve built from the ground up, at the time of sale you will need a business which does not depend on you — and building a business like that can require a lot of time.

Take our FREE ExitMap® Assessment and get a 12-page report scoring you in four key planning areas: Finance, Planning, Profit/Revenue, Operations. It will take about 15 minutes and we do not ask for confidential information.

ennislp.com | email@ennislp.com | 301-859-0860

Will Deciding on Exit Strategy be Easy or Difficult?

For most small business owners, deciding as to how they exit will be easy, because they will have few options.

The majority of small business owners, based on research, will choose between selling assets to a third-party buyer or simply shutting down when they’re done being a business owner. To realize the maximum number of options for exit, an owner needs to invest both time and money, and few do this systematically and strategically over time with the end in view. The result is fewer options for exit and a forced “easy exit decision”.

Those of you who do plan, build a business that is transferable, and hence have more exit options, might be (in a good way!) further challenged when making the final decision as to what exit path to execute.

Betty founded her business over twenty years ago, and was strategic in her approach to building a transferable business and planning for her eventual exit — she continually had the end in view when planning for business growth today. From the beginning, Betty’s plan was to eventually sell to a third-party buyer and that is absolutely a current possibility as she’s recently been approached by a few potential buyers. Betty would now like to leave completely in the next 2-3 years, so a sale with an earnout could be the answer.

However, Betty now has other interests and goals, in addition to her financial goals — she has two children in the business that have shown interest and promise in being future owners — Betty would very much like to see the values and culture of the business sustained in the future — and finally, she’d like to ensure the future of key employees who have helped her grow the business through the years. These “values-based” goals more align with either an ESOP (Employee Stock Ownership Plan), sale to a key employee group, or transfer to the children.

The good news for Betty has many options for exit, so she can give legitimate and serious consideration to all of her values-based and legacy goals.

More challenging for sure, but good challenges as Betty has the flexibility to accomplish all of her goals in choosing the best-aligned exit strategy. She is not limited as to her options — Betty is positioned to do a third-party sale, sale to insiders, an ESOP, a transfer to children, or a combination.

Betty is again enjoying the benefit of having an experienced and trained Exit Planner assist in thinking through all the pertinent issues.

In Betty’s case, there is an understanding that having a “tough exit decision”, is actually a good thing because it’s due to her various exit options and goals. Betty’s Exit Planner helped to get her to this point and is again adding value in designing and implementing the final decision. She is grateful for the exit options available to her and the flexibility for personal goal attainment which are the good fruits of wisely investing in a strategic exit plan from the inception of her business.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

"I want to sell my business in 1-2 years..."

Many baby boomer business owners are thinking they "are ready" to leave their business in next 1-2 years and begin their retirement or third act in life.  With the economy growing and the number of investors seeking quality businesses to buy, many are thinking it could be an opportunity to "sell high" and accomplish their financial goals.

If indeed there is a desire is to sell within 2 years, and minimal or no exit planning and pre-sale due diligence has been achieved to this point, following are a number of the key planning issues that should be addressed in the first 60 days:

• Establish owner-based exit goals (desired buyer, sale-price, values-based goals, etc.) and do whatever possible to prepare for life after the sale. Survey data indicates most business owners are not happy in life two years after the sale of their business.

• Select a transaction intermediary (Investment Banker or Business Broker).

• Get an estimate of business marketability and value.

• Begin tax planning and pre-sale due diligence.

• Assess and, if possible, enhance business value drivers.

• Take steps to protect the value of the business during transfer (i.e., employee incentive plans/stay bonus).

• Select the remaining needed members of your Deal Team (i.e., CPA, M&A Attorney).

• Review your estate plan and business continuity arrangements.

• Make decisions pertaining to a plan for communicating your plans to employees.

This is not an exhaustive list and only represents what should happen in the first 60 days.  There is much more to do throughout the 2-year period to give yourself the best chance at a successful exit.  So, an immediate priority should be the selection of a trained and experienced Exit Planner to assist with the management of the exit planning project.  Typically someone is going to engage a knowledgeable project manager or general contractor to manage the process for building their "dream house".  In selling a business, there is much more at stake than building a dream house.

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

What's an "Earnout"?

The term “earnout” is often mentioned by an advisor or business owner when describing the terms of a business sale. If an owner has as part of their deal an earn-out, they have been asked by the buyer of their business to stay on for a specified period of time in a senior leadership role within your acquirer’s company. In this role, they will be charged with achieving a set of goals in the future (i.e., revenue or profitability goals) in return for additional compensation for their business. This approach is used when the successful operation of the business being bought is dependent on its owner, and/or the buyer needs to bridge the gap between what they are willing to pay for the business and the amount of money the owner wants for the business.

Earnout terms average three years in length and are very common in service businesses. The assigned earn-out goals are often linked to revenue and profit, the retention of specific accounts or customers, or any other metric that the buyer considers important and the seller is willing to agree to.

Earnouts at times can work extremely well for both parties. At the same time, all too often it doesn’t work out with the selling owner leaving prior to receiving their earnout. A common reason for an owner leaving early would be the fact that they are now an employee of the company they have invested years in building, and that can be a very difficult adjustment.

We talk a lot about planning to exit “on your own terms and conditions”. Leaving on your own terms and conditions might look like not being forced into an earnout when you sell. If you begin planning your exit well in advance, you can think through what roles you would be willing to play when you leave (i.e, lender, employee, shareholder), and which roles you wouldn’t be willing to play. For example, if there is just no way in the world you’d ever want to be an employee of the business you’ve built from the ground up, at the time of sale you will need a business which does not depend on you — and building a business like that can require a lot of time.

You can take advantage of our FREE ExitMap® Assessment which will provide you with a 12-page report scoring you in these four key planning areas: Finance, Planning, Profit/Revenue, Operations. It will take about 15 minutes of your time and we do not ask for confidential information.

ennislp.com | email@ennislp.com | 301-859-0860