If you’re a business owner with a desire and vision for selling to key employees who have helped you build the business, the following is a short list of important issues to seriously consider prior to moving forward. And, the sooner you begin the greater chance of a successful transition.

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.

Often business owners are exhorted to build their business with "the end", or their eventual exit in mind.  This can be a good idea in that it lends toward building your business to have "transferable value", or value that someone else will want to buy and own when you're ready to leave.  Value apart from you the owner.

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Founded in 1946, Fidelity Investments celebrated 75 years of business in 2021.  Through their 52,000-plus associates and global presence, they serve 40 million individual investors, manage employee benefit programs for nearly 23,000 businesses, and support more than 3,600 advisory firms with investment and technology solutions.  Since its inception, Fidelity has experienced consistent and impressive growth.

You may have people working in key roles who are instrumental in growing and building the value of your business. These key people can be identified as having the following characteristics:

• makes a substantial business contribution

• possesses critical information or knowledge or

• maintains and nourishes key contacts and relationships

Deciding on an exit route of a sale to insiders or children can be more complicated and less expedient than a sale to a third party. There are not a few key planning issues when considering this exit option SUCH AS:

• Will the owner’s financial goals be achieved?

• Is the business cash flow strong enough to support a transaction?

• How can the transaction be structured to minimize taxes?

Key employees are “key” because they have a significant impact on the current and long-term success of the business. Hence, the business owner(s) will want to be intentional and strategic in aligning compensation and incentive plans for those key employees with the owner’s goals for business growth and exit. Owners should also protect against the potential loss of these valued employees due to death or disability, as their loss can be quite damaging and even destructive to business value and future growth. Following are suggested steps to take in assigning value to your key employees.

At the heart of an effective and successful plan for a business owner's exit is what we call transferable or sellable value. The transferable value being the value of your business apart from you the owner or what someone is willing to pay for the business without you.  

Following are a few sample questions for gauging the strength of your business transferable value

Sarah wanted to exit in 5 years and had learned through planning and analysis led by her exit planner what “her number” was, as well as an objective estimate of the value for her business. She was pleasantly surprised to find that the financial gap for making her post-business dreams happen is not insurmountable. At the same time, she is aware that growing the value of the business (Sarah’s largest asset) will be necessary to close the existing gap.

One of the compelling and common characteristics of successful owners is their optimism.  Their “glass is always half full” attitude results in the risk-taking, perseverance, and innovation it takes to build and grow a successful business.  And, like it is with any personal strength, this strength of optimism can quickly become a weakness when there is a need to plan for the gloomy business contingencies of death and disability.  What happens to the business due to either of these less than optimistic events is probably the last thing an owner wants to think about.

For many, January is a time of rebirth and resolutions. It’s a month to reflect on last year’s achievements and to set goals for the year ahead.

Some people will set personal goals like losing weight or quitting a nasty habit, and most company owners will set business goals that focus on hitting certain revenue or profit milestones. But if your goal is to own a more valuable business in 2019, you may want to make one of the following New Year’s resolutions:

If you’re trying to figure out what your business might be worth, it’s helpful to consider what acquirers are paying for companies like yours these days.

A little internet research will probably reveal that a business like yours trades for a multiple of your pre-tax profit, which is Sellers Discretionary Earnings (SDE) for a small business and Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA) for a slightly larger business.

Entrepreneurs can have many reasons for wanting to launch and own a business, but typically "freedom" is a key motivating factor.  And, when your business is sellable, not only do you enjoy increased freedom today, but also in the future when you realize more options for your eventual exit. 

As a business owner you pour your heart into your work and it has become part of you. But at times, the business you have carefully nurtured for years can become a burden - there's a part of you that yearns to do something else - travel, spend more time with family, enjoy more leisure, or even start another new business. You are confused. 

So when it comes to considering the future of your business, where is your heart?