By Jayne M. McQuillan, CPA, MBA, CEPA, Journey Consulting, LLC
COVID-19, supply chain shortages, and difficult employment markets have tested the resiliency of businesses over the past two years and stretched owners to their limits. These challenges have also caused many owners to step back and consider whether they want to continue running their business or exit. The real question is, “Are they ready?”
What is business exit readiness?
Readiness considers two key factors: owner readiness and business readiness.
Owner readiness is both personal and financial
Have you planned for your exit? Retirement for most business owners can look quite different than it does for other retirees. You have invested all your time, talents, and dollars into the business. Leaving that business can create a void where there was once identity and purpose. Planning what you will do with your time after exiting is not something you should leave to chance. In fact, three-fourths of all business owners who sell significantly regret their decision within 12 months after the sale. Why? Because they were running from something rather than to something.
Did you know many business exits are unplanned? In fact, 50% of all exits are a result of death, disability, disagreement, divorce, or distress. Preparing to exit on your own terms takes time and planning to find the best exit strategy for you and ensure that you are ready for the “next chapter.” Proper planning ensures you’re always ready!
Financial preparedness is the other part of owner readiness. It may surprise you that 43% of all business owners have done no planning at all when it comes to their exit. In addition, 80-90% of a business owner’s wealth is tied up in their business. As an exit planning adviser, when I ask business owners what they need from their business to retire, the majority have no idea. The starting point to determine “enough” is to have a business valuation done. That valuation then needs to be incorporated into a financial plan that projects the financial needs to support the “next chapter.” This is not a one-size-fits-all approach, but an iterative process to reflect changing goals and situations. Because if we’ve learned anything, it’s that change is constant.
Business readiness is in the eyes of the buyer, not the seller
As a fellow business owner, I know we all think our business is both beautiful and highly valuable. It’s like our child. No one thinks their child is “ugly.” However, when it comes time to sell, it’s not what we believe that matters, only what the buyer is willing to pay.
Some areas that make a business valuable in the eyes of prospective buyers: non-reliance on owners, strong management team, diversified customer base, good systems and processes, clean financial statements, recurring revenue streams, replicable business model, growing industry or market, proprietary products or services, no or minimal supplier dependency, strong workforce, and culture. There is no perfect business; however, some businesses are more attractive than others, and focusing on the key areas that drive value in your business can position your business to sell!
To learn how you can prepare for a successful exit or to evaluate your readiness, attend one of our upcoming Owner Roundtable Events or complete the Pre-Score Assessment on our website and receive a free consultation: www.journeyconsult.com
About the Author
Jayne M. McQuillan CPA, MBA, CEPA
Journey Consulting, LLC
jmcquillan@journeyconsult.com
Jayne McQuillan is the owner/founder of Journey Consulting, focused on comprehensively serving the needs of family-owned and privately held businesses. A recognized expert in exit, succession, and strategic planning, Jayne has 30+ years of working with clients across all industries to build value and prepare owners for exit.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Insight Publications, LLC.
