How to prepare your business — and yourself — for a sale

You’ve worked hard to create a best-in-class business and are ready to go to market. But as the owner, are you prepared for what’s next?
“For many owners, their business is their identity, which can make parting with it feel like stepping into unknown territory,” says Frank Fantozzi, CPA, MST, PFS, CDFA, AIF®, CEPA, president and founder of Planned Financial Services. “It’s critical that both the owner and the business are ready to sell.”

Smart Business spoke with Fantozzi to learn how a Certified Exit Planning Advisor (CEPA) can help you and your business prepare for a successful exit.

How can owners prepare themselves for an exit?

Because exit planning is a business strategy, it should be started sooner than later. Waiting until three to five years before you plan to exit may not allow enough time to place yourself and your business in the most advantageous position to transition.

Remember, you want to exit on your terms, not because your health has failed, or you’ve overstayed your highest and best use. That requires a mindful plan for what you will do when the business is no longer consuming your life, such as taking up hobbies, serving on boards, mentoring or other meaningful activities to ease your transition.

How can outside advisors help?

Exit planning requires a team of advisors, including legal and accounting professionals, and a CEPA to quarterback the process, ask the right questions and holistically address your big picture. Do you have a realistic understanding of your business’s value and if it can support you family’s financial needs? What would it take for you to walk away? Who will be your successor? What’s most important to you? Owners often don’t have the answers because they’ve been too busy running the business to think about what’s next.

Exit planning provides a gameplan for determining when you’re ready to walk away, what your next steps will be and how your legacy will play out. Discovery, which weighs different scenarios and potential outcomes, is the first step in that process.

How does the plan evolve?

Like your business, your plan will evolve over time. It’s critical to evaluate your progress at least annually based on targeted goals that support your desired outcomes. The planning cycle focuses on monitoring your progress to determine if you’re still on track to accomplish your personal and business goals, if key performance indicators are improving and if you’re ready to sell or want to keep going.

Does preparing to exit require a shift in mindset?

Yes, and this can be hard for many business owners. You need to make yourself the least important person in the business because the organization’s ongoing success will no longer be dependent on you. That begins with understanding key areas where buyers seek value, beginning with customer capital. Is the business tied to the owner or just a few customers? Is there a diverse client base where customers love the team, so buyers are willing to pay more, whether the owner is there or not?

Social capital is about culture. Does it revolve around the owner, or is it pervasive? A buyer may be willing to pay more when the culture is embedded in the company.

Finally, there’s human capital. Is the owner making all the decisions, or are team members empowered to carry out their roles? Buyers will often pay a premium for structural capital, where standard operating procedures are documented and there is a clear business vision and mission.

Business value is tied to the systems, processes and people that create a foundation that is scalable. With proper planning and enough time, it can be increased to help achieve the most desirable outcome for the business and its owner. Yet many owners don’t want to commit the time and money to plan their exit because business gets in the way, or they fail to see the benefits.

However, if having a plan in place could net you millions more upon your exit, that’s a return on investment worth exploring. ●

INSIGHTS Wealth Management is brought to you by Planned Financial Services

Frank Fantozzi

President and Founder

440.740.0130 ext. 222

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