A small business owner named Simon understands how the cash flow of the business drives his current income, and as well how it would eventually impact the valuation and sale price. However, Simon lacked awareness of elements of potential exit routes that demand cash flow.

Training your Business Successor is crucial in ensuring a smooth transition of ownership and leadership. The following are critical elements to consider when preparing your Business Successor…

A significant reliance on one or a few customers will directly impact your business's sellability. A high level of customer concentration is risky for a potential buyer who will request a customer concentration list as part of their due diligence process. A wise approach to strategically building a business that is indeed sellable and to being prepared for a future sale transaction is to create and manage a customer list as part of your ongoing business management process.

Protecting the value of your business demands compliance with employment laws and prevention of employee claims and disputes.

At Lerch, Early & Brewer’s first annual Employment Law Day on September 17, 2024, employment attorney Marc Engel presented 15 cost-effective measures employers can take to improve compliance, which follow here….

An often adopted exit strategy for a founder of a small business is to sell to a group of employees who have expressed a desire to be the future owners. Factors to be considered in assessing the viability of this strategy for the selling owner(s) include their personal financial goals, risk tolerance regarding payment of sale proceeds, and the buyers' capabilities to be successful business owners. Another risk factor most often neglected is whether the employees, who may be working well together, will succeed as business partners.

Transitioning from founder mode to management team mode presents several challenges for small business owners as they plan for their eventual exit. Different leadership styles and approaches will be required as the business grows and moves from the start-up phase to a more mature stage. Here are some key challenges associated with this transition…

"I'm ready to sell and exit!" — a small business owner can arrive at that point in their thinking and emotions quickly and for many good reasons. Common reasons include retirement, health issues, a desire to do something else (e.g., travel with a spouse), or simply being burned out and tired of owning a business.

So, the business owner reaches out to a Business Broker to sell their business, but they may face some harsh realities. Even though they are "ready to sell," the Business Broker informs them that their business isn't ready to be sold as is, at least not for the $$$$ they need to get out of it. They learn that even though they have realized an excellent standard of living by doing "what seemed good" along the way, they've created a "lifestyle business" rather than building a business that would be of value to a viable buyer.

“It’s too late to turn back now.”  “We’re too swamped for that now.”  “We can probably do that ourselves.”  “It’s crazy busy around here.”  These are just a few examples of “expensive sentences” mentioned by my friend Jack Quarles in his book, Expensive Sentences, Debunking the Common Myths that Derail Decisions and Sabotage Success.

Small businesses stay small either by choice, or because they start chasing growth in the wrong places.

When you strip away the layers, it all comes down to darts.

Imagine a dart board with a bull’s eye and around it is a series of wider and wider circles. The bull’s eye is where the people just like you hang out. They are the people (or businesses) who feel the problem your company set out to solve. They are usually your first customers and raving fans.

The further you go outside of your bull’s eye, the less these prospects feel your exact pain.

Emily has been in business for 10 years and has plateaued in both revenue and profitability. Her exit planning advisor Mary has learned that she wants to exit in 5 years and how much $$$$ she will need net of taxes in order to exit successfully. An estimate of business value has revealed that her business is worth about 50% of what it will need to be worth for Emily to head off to Hawaii in 5 years in the way she wants to.

I am a Passive Investor in the stock market – I use the “park it and forget it” approach.  Active investing seeks to outperform the market and requires paying constant attention to the market,  in order to buy and sell specific securities at just the right time to maximize your gain.

Every business owner benefits from the income they receive from their business, however, the business is not viewed as an asset.  Yet, for most business owners,  the most significant asset in their portfolio is their business and often plays an important role in the owner’s ability to retire.  The ability to sell the business for a good price is critical.

In business, one key aspect often separates successful ventures from those that struggle to thrive: systems documentation. It's the roadmap, the blueprint outlining how a business operates, from its day-to-day processes to long-term strategies. In a recent ExitReadiness® PODCAST episode with guest Jason Henderberg, we discussed how meticulous system documentation can significantly enhance a business's value, ultimately paving the way for a higher sales multiple.

A Certified Business Valuation is a comprehensive assessment conducted by a qualified professional to determine the fair market value of a business. It involves a systematic analysis of various factors such as financial statements, industry trends, market conditions, company assets, intellectual property, customer base, and other relevant aspects to estimate the worth of a business.

Key person insurance plays a vital role in protecting businesses from the financial impact of losing key individuals within the organization. It provides a safety net by compensating the company for the loss incurred due to the death or disability of a key employee. While key person insurance is a valuable risk management tool, business owners must understand the taxation aspects associated with these policies.

Every sale of a business requires negotiation.  The buyer is purchasing the future potential of the company and is aware that they can only learn so much in a due diligence process.  The seller’s strong management team, documented procedures, and portfolio of recurring revenue clients, and other value drivers will move a buyer forward. And, if a seller wants to further strengthen their story at the negotiation table they will be prepared with a documented strategic plan for future growth.

A business book that I read the book when it was first published, and find helpful to revisit regularly, is Execution: The Discipline of Getting Things Done by Larry Bossidy and Ram Charan. The authors’ definition of “execution” is particularly insightful and helpful when considering how an owner should build a business that is transferable, and in planning their eventual exit from the business

“Fundamentally, execution is the discipline of systematically exposing reality and acting on it.”

A key element for an exiting successfully on your own terms and conditions is realizing the role(s) that you’re willing to play post-sale or transfer.

John sold to a strategic buyer and an earn-out with John working as an employee for 3 years as part of the deal. He had not planned in a way to avoid this, and after 2 years decided to forfeit the balance of his payout and leave because he was finding it too difficult to work for the new management.

Can you leave your business for a month, sit on the beach and leave your phone in the beach bag?  If so, you have attained what few business owners do – a business that can run without you!  Aside from sound cash flow, the creation of a management team is the most significant driver of business value.  When the time comes for you to leave for good, a buyer wants your team, not you!  If you can’t yet take that month, here are a few simple thoughts…

Non-Qualified Deferred Compensation (NQDC) often plays a role when structuring either a sale to insiders or a transfer of the business to children in the business. It is a type of retirement plan that allows highly compensated employees (in this case the exiting owner) to realize tax advantages by deferring a percentage of their compensation (and current income taxes) beyond what is permitted by the IRS in a qualified retirement plan (i.e., 401K). In essence, it is paying out INCOME EARNED at some point in the future, with a primary goal of minimizing income taxes.