Key Elements to a successful Exit Plan

Written Plan with measurable objectives based on the owner’s goals.

• A written plan is essential to serve as a roadmap for the owner, Exit Planner, and other advisors during the entire transition process. It is virtually impossible to start and complete a successful exit from your business without such a plan.
• An Accountability Checklist based on the predetermined objectives serves as a yardstick against which to measure your progress through the Exit Planning Process.
• You, the business owner, will know exactly what to expect at each of the various steps along the way.
• The entire team is knowledgeable about the overall process as well as the individual responsibilities of each advisor. The Accountability Checklist identifies the member of the advisory team who is responsible for each particular task and establishes a timeline for the completion of each task.

Experienced Team of Advisors, including the Exit Planning Professional

• A team made up of several advisors will be assembled, each with their own area of expertise, as required by your plan. Lawyers, accountants, financial and insurance professionals, business consultants, and perhaps others must each have extensive experience in their field to help you create and implement the Exit Plan.
• You will also need one advisor who is experienced in the Exit Planning Process. This advisor will provide:
  • Experience in creating exit plans.
  • Knowledge of planning strategies used throughout the industry.
  • Access to professional resources as needed to fill critical roles on the team.
  • Expertise in guiding and facilitating the advisor team.
  • A commitment to keeping the plan on path, on the right path.
  • Ability to ensure that the plan progresses all the way through the important step of implementation.

Strong, positive cash flow… and the value of your business.

• The Facts:
  • Cash flow is critical to determine what your business is worth.
  • A commonly used measurement is EBITDA: Earnings before Interest, Taxes, Depreciation and Amortization.
  • A quick look at value of a company is a multiple of EBITDA or a multiple of cash flow. If a business has very little or no EBITDA, or cash flow, there is very little if any value to the business above liquidation.
  • Cash Flow is critical if you are transferring the business to an insider such as a child, co-owner, or perhaps a key employee or management team.
    • A common denominator between these insiders is that each usually has very little, if any, money with which to buy your business interest.
    • As such, these insiders must rely on the future cash flow of the business after your exit. This cash flow will provide the bulk of the funds they need to pay the balance due you.
  • Cash Flow and Value must justify a sale price high enough that the net profit, after all debts and tax bills have been paid, will enable you to satisfy all your financial objectives when combined with your other sources of income.

Strong, Effective, Motivated, Management Team in Place.

• It’s very difficult to sell a business to a third party without a management team in place to continue running the business after you have exited. A competent management team is a major plus for any prospective buyer and the lack of such a team can be a deal-breaker. Additionally, such a management team is often the perspective buyer in an insider sale.
• This management team must be able to manage the day-to-day operations of your business, and must do so profitably. A potential buyer needs to know that the business will continue to operate smoothly and profitably after you are gone.

Time…

• Planning for your exit from your business takes time; it may take quite a bit of time! Strong cash flow, high business value and a competent management team are essential elements that must be in place before the sale.