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Accounting for Life After Business in your Exit Strategy

By Generational Equity

Elderly Couple

In the last few years, research by the Exit Planning Institute (EPI) has indicated an unavoidable fact: many business owners don’t understand how much goes into developing an effective exit strategy. According to the EPI, many owners risk not exiting for an optimal price because they don’t take the necessary steps to prepare for this life-changing moment soon enough.

Christopher Snider, the EPI’s president and CEO, said in an interview earlier this year that:

“Owners are woefully unprepared for this event that – for probably two-thirds of the business owners – is likely to occur within the next 10 to 15 years.”

A survey in February of San Diego business owners (which closely resembled the EPI’s national survey in 2016) emphasized several hurdles that company owners weren’t ready or able to overcome during the exit process, including:

  • 53 percent of business owners paid no attention to their exit strategy, despite most being 51 or older
  • 88 percent had no written plan to transition from the current owner
  • 80 percent have never contacted a professional M&A firm about their exit plans
  • 70 percent didn’t know how much income after-tax they would need to support their lifestyle

Our focus in this piece is on this final statistic. One of the main factors that can be the difference between a textbook exit and missing out on the maximum return on your investment is time. You could have spent years of your life building your business, and therefore would like years after you exit to spend with your family and pursue your favorite pastimes (or even start another business). But, without considering what income you will need as part of your exit strategy, this ambition is placed under serious scrutiny.

Because, without going through every stage of the M&A process with guidance from professionals like our team at Generational Equity (and with the help of a skilled wealth manager), how can you be sure you will have enough money to maintain your lifestyle once you exit? The quick answer is you can’t.

The issue is this: many business owners assume that either the sale of their company will adequately account for their life post-exit, or that they will be able to live on much less than what they’re currently spending. Others feel they have a firm grasp on what their partner and children spend each year, when the true number proves to be far different.

Over the years we have met many business owners that didn’t understand the gulf that can exist between the market value of a company compared to how much they will need to fund the next stage of their lives. By making assumptions or misjudging how much income you require to support your lifestyle, you may place the long-term financial security of you and your family in jeopardy.

Start Your Exit Strategy Early

“If you need $3 million to retire but your company is worth less than this, how will you know that exiting right now is not the best plan? And how will you know that you need to develop strategies to build your value? You won’t.”

The way to bridge this gap is to grow your company using sound exit planning advice and increase net proceeds when you exit. This is easier said than done, but very achievable with the help of skilled guidance. The first step is to meet with your financial advisor and determine how much you will need to earn after you exit – remember to include any compensation and business perks to ensure an accurate number. Many skip this important step, so make sure you’re not one of them.

Now you know what your income needs to be, you should contact Generational Equity. Our team will provide a thorough and detailed business valuation based on your company’s recast financials. This will give you an accurate assessment of what your business is worth in the current market and determine whether it will meet the income you require. If this is below your threshold, you can now introduce strategies to increase the value of your company over time.  We call this our Roadmap for the Enhancing Value which we provide to every client. 

This way, time is on your side, and you can treat your exit strategy as a PROCESS, not an EVENT. Through careful planning and effective practices, you can generate the optimal return for the years you’ve put into the growth of your company, and set yourself up for a comfortable post-exit.

If you are ready to invest time in forming your exit strategy, we encourage you to attend one of our executive conferences. Here, you’ll discover the steps involved in the M&A process and how to develop the ideal exit strategy. Plus, our advisors at Generational Equity will take the time to get to know you and your reasons for exiting, so we can help you enjoy life after your company.

Don’t put off your exit planning – contact our team today to find executive conferences taking place near you.

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Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”
Karen S. Williams, CFO, BW Manufacturing
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.
Karen S. Williams, CFO, BW Manufacturing
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!
Andy Graham, Vice President, Modern Heating & Plumbing
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.
Michael J Polarek, President, Paragon Packaging
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.
Michael J Polarek, President, Paragon Packaging
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse