Many business owners have the vast majority of their net worth tied up in the business, according to a study by the U.S. Small Business Administration. Whether they are able to retire comfortably after a lifetime of hard work will depend on how carefully they create (and follow) their exit strategy. Those who plan to retire soon, or even years from now, need to take specific steps to assure they receive the maximum value for the enterprise they have created. Failing to do so can be a costly mistake.
According to the Pew Research Center, more than 3.5 million baby boomers will turn 65 this year. While the study also shows that boomers don’t believe old age begins before 72, the aging boomer population is leading to a dramatic increase in the number of business owners seeking buyers for their companies. Now may be the best time to sell given the exponential growth in baby boomer business owner retirement over the next 15 years.
“Selling a business for an optimal value begins with a process that many business owners have been too busy to think about,” said Carl Doerksen, of Generational Equity, a firm that specializes in the valuation and marketing of companies valued at between $1 and $150 million. “Those who must suddenly sell due to health issues or other events will often fail to recognize the full value of the enterprise they have created.”
Generational Equity offers executive conferences for business owners that illustrate the multi-step process necessary to maximize a company’s sales potential and price.
Getting the books in order is step one. This includes recasting earnings to reflect the true financials of the business without one-time expenses or costs and other items not relating to the ongoing operation of the company. For example, a new owner won’t be paying the lease on the former owner’s company car, his or her country club dues or hire non-essential relatives or friends. Recasting earnings can add thousands of dollars to the businesses valuation.
“Professional M&A advisors can also help identify intangible assets that don’t appear on the books but will draw the interest of potential buyers. The length of service and quality of your employees as well as long-term relationships with major customers have real value that buyers may pay for,” says Doerksen. “Why sell to an acquirer who is unwilling to pay a premium for your business?”
Generational Equity often identifies multiple potential buyers for a business. “Equity firms with portfolio companies that have synergies with your business may find your company attractive,” says Doerksen. “Foreign companies that have or desire an expanded U.S. presence in your industry may be attracted as well. Even retired CEOs with a high net worth who are interested in staying active are potential candidates.
“So the goal is not just to identify a single potential buyer,” says Doerksen, “but rather create an auction among several potential buyers and if interest rates continue to rise, identify buyers for whom this is less of an impact.”
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