Great Ideas: How to plan your exit

At some point, nearly all entrepreneurs are faced with a tough decision: how to sell the company to which they've devoted immeasurable time, money and effort. With scores of boomers approaching retirement age, it's a question thousands of business owners will have to address. Yet few are doing so—at least, not in a strategic fashion. According to business transition coach Wayne Vanwyck, only seven percent of the boomer business owners who intend to retire in the next 10 years have prepared a succession plan. The stats aren't much better for serial entrepreneurs looking to sell and move on to their next venture. The result? Disappointing transactions.

In The Business Transition Crisis: Plan Your Succession Now and Beat The Biggest Business Selloff in History, Vanwyck contends that succession planning need not be an arduous task, so long as you start doing so in good time and enlist outside help. Here are the three steps he says no would-be seller should skip.

Understand what buyers want

Entrepreneurs aren't the most objective judges of business value. Just because you think your business is worth $14 million doesn't mean a potential buyer sees it that way. To avoid disappointment when it comes time to sell, it's helpful to know how your business is valued from the perspective of the person who will be writing the cheque.

There are countless considerations. Will the valuation be based on income alone, or will other variables—such as the value of assets if liquidated, or the value of goodwill and intangibles—be factored in? Will the buyer be strategic (e.g., using your firm to penetrate a new market) or financial (e.g. seeking revenue growth)? Will it be an asset or stock purchase? The answers will be highly dependent on your industry and the internal structure of your business; Vanwyck recommends meeting with an accountant or business broker to determine what potential purchasers of your company might look for. When you know what buyers want, you can take steps to enhance the true value of the business from their perspective.

Set a goal

Presumably, you want to walk out of the sale with some money. But how much? It's best not to pick a figure out of thin air, Vanwyck says. Instead, create a list of what you want the money to cover. It could include, for example, a set per-year income for the rest of your life (if you're retiring), the elimination of all personal debt, a donation to your favourite charity, and/or gifts to children. Tally up what you'll need, and see whether the sale price buyers are willing to pay will cover it. If it won't, work with unbiased advisors (see below) to either ramp up your valuation or pare down your goals.

Get outside advice

Impartial external advice is essential in helping you meet your transition goal. Vanwyck recommends consulting with an accountant, a financial advisor, a lawyer, a leadership coach and a business transition specialist to make sure you're making the best decisions. The goal is to have as many fresh eyes on the situation as possible.

This may mean choosing someone other than, say, the accountant you've used for the past 30 years. According to Vanwyck, it's often better to choose advisors you've never worked with before when creating a succession plan, since your tried-and-true partners may not have experience in business transitions, and may in fact have a vested interest in preventing you from selling.