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Planning a Successful Business Exit: A Comprehensive Guide for Owners**

Learn how to effectively plan for a successful business exit with insights from experts Jeff Christensen and Holly Quinn. This guide covers the essential strategies including understanding the impact on your family and community, recognizing challenges and exit opportunities, pricing your business correctly, and working with experienced advisors. Discover the potential pitfalls that business owners face, from undervaluation to failing to plan. Equip yourself with the knowledge to navigate this crucial stage of business ownership and ensure a smooth transition.

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Planning a Successful Business Exit: A Comprehensive Guide for Owners**

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  1. How to Plan a Successful Business Exit Jeff Christensen & Holly QuinnNENEDD Business Loan SpecialistsEconomic Development Financial ProfessionalsAccredited Business Planning Advisors

  2. Exit & Succession • What it means to your Family, Community and Region • Challenges • Exit Opportunities • Who can Help & How

  3. Lessons LearnedWhat can go wrong? • 1st Attempts Often Fail • Wrong Price • Buyer not Qualified • Work With Experienced Advisors • Explore All Exit Options • Business Value • Buyer Needs • Room for Improvement • Last Minute Negotiations • Failing to Plan….Planning to Fail

  4. The Coming Wave • Where Are Things Headed • Impacts on the Local Community • What’s started

  5. Impact – What are the Factors • Business Owners are Aging • 52-70% of Business Owners will leave by 2017 • Small to Mid-Sized Businesses • 1/3 Transfer to Family • 1/3 Sell to Someone Else • 1/3 Sell Inventory & Close the Door • Economic Downturn • Business Owners Think They’ve hit Bottom Already • Retirement is on Hold….Hope to Sell at a Later Time

  6. Impact – What are the Factors • Outside Factors will Force an Exit • Less Financing Available • Banks have tightened Lending Practices • Due to Regulations • Fewer Entrepreneurs and Buyers • Lack of Qualified Buyers • Buyer Lives Elsewhere – Profits Leave Community • Absentee Owner • Local Owners = Local Wealth

  7. Uncontrollable & Risky • Family Succession can by risky • 65% of Family Successions FAIL • 80% within the 1st2 years • Do Family Members want the Business? • Not all Exits can be controlled • Owner is Key Employee – Forced Early Exit • Illness, Disability, Death

  8. Goals • Maximize Number of Exit Opportunities • Maximize Business Value • Minimize Cost of Exit

  9. Buyers • Businesses are Sold to Individuals • Seeking a Life Style • Buying a Job • Buyer are Looking for: • Bragging Rights • A Good Deal • Good Management • Up to Date Inventory • Website/Advertising/Marketing • Curb Appeal

  10. Business Value • Value of Business • 20% of Business Owners Undervalue their Business • Leaving Money on Table • Business Must be Priced Correctly • Over Priced to Cover other Expenses • Buyers Consider Sale Based on Past Performances • Future Performance/Earnings • Excess Market Time = Increased Risk • Loose Clients, Employees, Suppliers

  11. Fair Market Business Valuation • Required for a Qualified Business Deal • 70% of Businesses don’t sell • Seller isn’t Motivated • Financials in Disarray • Unreported income • Self Accounting System • Using Business to Pay for Items not Related to the Business

  12. Business Owner’s Goals • Maximize Benefits • Minimize Taxes • Look for all Cash Deal • No owner Financing • Little or no Goodwill • Maximum Sales Price

  13. Success - Opportunity • Buyer wants more Success • Looking for Opportunity – not repetition • Seller must be Truthful • Need to fix Financial Issues • Seasonality • Employees • Contracts • Lease/Ownership of Building

  14. Financial Demands • Business Must Meet 3 Financial Needs • Return On Equity • Pay New Owner Salary & Benefits • Make Loan Payments

  15. Example • $1,000,000 – Total Purchase Price • $200,000 – Equity (20%) • $800,000 – Loan (80%) • $30,000 – 15% ROE • $60,000 – Salary/Benefits • $80,000 – Loan Payments • $170,000 Cash Flow NEEDED

  16. Financing • 80/20% • Required Equity Injection • SBA or USDA Guaranty • Lender Requirements • Volatility of Market • Type of Business • Financial Information – Past 3 years • Income & Expense Statements • Balance Sheet • Accounts Payable & Receivables

  17. Business Reorganization • Change Operation • Demonstrate Opportunity • Reduce Expenses • Reduce Excess Compensation • Refrain from Discretionary Spending • Simplify Financial Reporting • Report ALL Income

  18. Unreported Income • $50,000/year – saves approx $20,000 on taxes • Reporting Income Increases Cash Flow • Increases Business Value at Time of Sale • Two Times Business Owner gets Money • Operating the Business • Time of Sale • Additional Purchase Price of the Business • $10,000 Additional Financing Required • Leaving $40,000 Additional Cash Flow

  19. NENEDD’s Business Transition & Success Program • Work with NBDC • Offer 9 Exit Opportunities • Process Requires Teamwork • Role is a Coach • Work with Existing Advisors • CPA, Attorney, Banker, etc. • Compliment Current Advisors • Provide Additional Resources • Everyone Works Towards the Same Goal

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