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Your 10-Year Exit Strategy

If you're looking toward retirement, plan ahead and sell when business is booming.

As a business broker who's been involved in hundreds of deals, I can tell you with certainty that the best time to sell your business is when it's doing well. I can also tell you that this is exactly when most business owners have the hardest time pulling the trigger on a sale. If things are going so well, they ask, why should they sell and potentially leave money on the table?

An entrepreneur's dream is to build a successful and profitable business, so to many owners it might seem illogical to walk away. Using a recent example involving a client, let me illustrate how it can pay off to sell when things are good.

This client hired our firm to determine the value of his business and market it to potential buyers. This company had all the attributes buyers are seeking--a great track record, increasing revenues and profits, long-term clients, key employees, a niche product, and very healthy margins. In fact, this business was just wrapping up a record year, and the future prospects were outstanding. At first glance, this was a model seller who had made the tough decision to sell when things were going well.

As anticipated, our firm generated multiple offers--several of them well above the value placed on the business. This was great news, and we thought the toughest part would be deciding which of the many qualified buyers the owner would choose. Wrong.

Because of all these offers, the owner began to second-guess the value of his business and became convinced that the buyers were undervaluing it. As such, we could not get a deal done, and the buyers went on to pursue other deals. Just four months later, the business started to slow. Today, it's not as valuable as it was when offers were on the table, and it will be some time before it regains its previous value.

Strong Prospects in Today's Market
The timing of a business sale can be a nebulous thing, especially in the current environment. Many people are surprised to hear that there are plenty of businesses performing well and generating healthy returns. There are great opportunities to successfully sell a business right now and maximize your investment. Even if sales are currently flat, don't misread that as a bad sign. Many analysts and economists like to toss around the phrase "flat is the new up." So if your business is holding its own--or if sales are slightly up or slightly down--consider it good news in this economy.

There is a market for your good business. The weak economy has created an abundance of individual buyers and healthy strategic buyers looking to acquire a good asset. The old economic notion of supply and demand remains very much in play today.

Should you have the good fortune to operate a business in one of the sectors below, there is a high likelihood that you will attract considerable buyer interest. These are ideal businesses for a society that is aging as well as getting comfortable tightening its belt.

  • Health care: Generally, any business related to health care is drawing a lot of interest, particularly businesses that cater to health care-related technologies. The obvious reason is the aging baby boomer generation, which will spike the demand curve like never before. Perhaps of equal significance is the pursuit to reform and remake our entire health-care system.
  • Business services: These include business-to-business operations that offer scale and have a solid infrastructure in place. In particular, collection agencies and debt-related businesses are doing very well in this economy.
  • Repair services: In times of economic belt-tightening, consumers and businesses want existing equipment to last longer. Businesses that repair items such as office equipment and machinery are in demand.

Planning Your Exit Strategy
Selling a business has always been an individual decision, and timing the sale right can be tricky. It's always best for sellers to plan their exits so they can leave when they want and under the circumstances they want.

As such, it would be wise to plan an exit strategy even as you launch your business, but most people can't fathom taking that step just as they are getting started. What follows is a 10-year timeline to help you plan for the eventual sale of your business.

Let's assume you're thinking of retiring and selling your business when you turn 65. (That number could be 55 or 75, of course.) This timeline, a rough guide, will help you put the pieces in place to prepare your business for sale. If you create a plan from day one, most of your time will be spent running the day-to-day operations of your business so you won't need to scramble when you're ready. It also helps you better calibrate the best time to sell so you can get top dollar and achieve your personal goals.

  • 7 to 10 Years Before Selling
    This is the education and reading stage. Learn about successful business transitions, attend seminars on how to sell a business, and talk to retirees who have sold a business. Essentially, get familiar with the notion of what you'll need to do as the process continues. Take your time; this phase can last for several years.
  • 3 to 5 Years Before Selling
    Start to assemble a team of advisors (accountant, attorney, wealth manager, insurance agent, business broker and exit planner) for the express purpose of designing a plan that will meet your needs post-sale. These advisors may be different than the people you use to help you manage your business, and they should be well-versed in business transactions, tax planning and wealth maximization. An experienced exit planning professional should be retained to quarterback this process and ensure that all the parties involved are working toward a common set of objectives and goals. The outcome of this process can range from minor tweaks to your financial record-keeping and legal structure to significant changes in your business operations to ensure that you maximize the value of your asset.
  • 2 Years Before Selling
    At this stage, you should be revisiting the exit plan every six months to a year to ensure you are on pace to achieve your goals. If so, you can begin the window dressing necessary to prepare for a sale. If not, you may have to consider a course correction, modification of your goals, a delay in your exit or any combination thereof. If things are on track, this is the time to firm up your vendor and client agreements and ensure key employees are in place and that you have a complete operations manual that documents all processes and procedures.
  • 1 Year Before Selling
    Make sure you can answer this question with clarity: Why are you selling? That will be the first question every potential buyer will ask. By now you know what your business is worth and you have prepared all other aspects for a sale. Work with your business brokerage firm to start developing the "go to market" strategy. Ensure that you have a mix of strategic and financial acquirers identified, as well as a broad-based marketing plan to attract the largest number of buyers. Finally, when everything is ready, take a step back. Just focus on managing the business so it's running smoothly and let your brokerage firm manage the life cycle of the business transaction. This will lead to a graceful and profitable exit.


Domenic Rinaldi is president and managing partner of Chicagoland Sunbelt, a Chicago-based business brokerage firm that focuses on helping people buy, grow and sell businesses. Rinaldi is a Certified Business Intermediary from the International Business Brokers Association and brings more than 24 years of experience to the business brokerage arena.

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