How we add value when our clients are ready to sell their business

Every business has a life cycle. By starting, buying, or owning your business, you have set yourself on a path with a fixed outcome – an eventual exit. Nostalgia aside, this simple fact remains that there will come a time when your most valuable asset changes hands. Whether that transaction is successful depends on you and the planning implemented before your exit.

Our team wants to help you unlock the wealth trapped in your business before the imminent exit, securing your future while leaving behind the legacy you deserve. We are a resource to business owners in taking steps before their exit to minimize taxes and maximize the value a buyer will pay for the business. You have spent time and enormous effort growing the value of your most significant asset. Our job is to help you harvest those riches effectively so you can then enter the best act of your life.

While 76% of business owners over 60 indicate they would like to transition in the next ten years and 48% would like to transition in the next five years, the reality is that only two of ten businesses that go to market will sell. Of those that sell, many will receive a lower multiple or sales price due to factors that include poor or non-transferable intangible assets. A Price Waterhouse survey indicated that 75% of business owners “profoundly regretted” selling their business 12 months after the sale. This regret is often because most business owners are not prepared once they decide to sell.

• 83% have no written transition plan.
  • 49% have done no planning at all.
• 93% have no formal life-after-business plan.
• 40% have no plans to cover illness, death, or forced exit.
• 56% felt they have a good idea of what their business is worth, yet only 18% had a formal valuation done within the last two years.

What is Exit Planning?

Richard Jackim says, “An exit plan asks and answers all the business, personal, financial, legal, and tax questions involved in transitioning a privately owned business. The plan includes contingencies for disability, divorce, death, and disagreements. Its purpose is to maximize the value of the business at the time of exit, minimize taxes, and ensure the owner can accomplish all his or her personal and financial goals in the process.”

How do we add value to our business owner clients?

• Helping our clients analyze four possible gaps in their future planning.
  • Client’s Retirement Wealth Gaps
  • Business Quality of Earnings Gaps
  • Business Buyer Risk Mitigation Gaps
  • Business Valuation Gaps

• Understanding the eight possible ways an owner can exit, which option may be best for your business, and which option will bring the most after-tax sales proceeds. Of the eight possible exit options, four internal and four external exit options are available to private businesses. Understanding the pros and cons of these options provides the business owner with a clearer path toward building his or her business value to transition it successfully for the ideal price.
• When interviewing and hiring Mergers and Acquisitions Consultants, Business Brokers, or Investment Bankers, it can be tricky to determine who will represent your interests the best and achieve a successful transition. Building the right team is extremely important to maximizing after-tax benefits. Unless you are a serial entrepreneur who regularly sells businesses, you will want to rely on qualified professionals to help navigate the complexities of a successful exit.
• Mitigating taxes in the sale of a business can provide significant benefits to the business owner and their family, and if properly set up in advance of the sale, can save the family millions in income, capital gains, and estate taxes. Having the right wealth and tax advisors at the table between 12 – 36 months before a sale is critical to maximizing the after-tax benefits.
• Business owners are generally focused on the business’s current income and managing the operations from year to year. While everyone knows that business buyers will pay a multiple of future earnings when buying a business, not everyone appreciates that the increase or decrease in the value assigned to the income produced will vary significantly based on the risk profile of the businesses they plan to buy. Potential buyers will pay significantly more for an EBITDA if the business is set up to reduce some of the inherent future risks for a buyer. Discovering what those business risks are for potential buyers and mitigating these risks before going to market will increase the multiple a business will trade for. Risk mitigation can include customer contracts, employee retention, customer diversification, supplier diversification, etc.
• Hiring a qualified team to help manage the sales process is crucial. Finding the right people for an exit team is important, but getting those professionals to work together on your behalf is a critical step towards realizing your goals of a successful exit, retirement, and building your legacy. Our team works with your lawyer, CPA, investment banker, banking team, and family to help structure a plan to maximize value, minimize taxes, and transition into your best phase of life.

Finally, life after your business can feel overwhelming, even as you look forward to it. Starting simply -- an exercise to begin thinking about your “third act” is S.T.E.P. (Spirituality, Things, Experiences, and People):

• Spirituality – What is the source of your inspiration? What is the center of your life? Some examples include being spouse-centered, family-centered, money-centered, work-centered, possession-centered, friend-centered, or church-centered.
• Things – Ask yourself what things you want that you do not have today and what things you could live without.
• Experiences – What experiences in life do you cherish the most? What do you still want to experience?
• People – Think about the people in your life -- past, present, and future. Are there people you wish you could spend more time with?

Running a successful business is hard enough; successfully planning for your eventual exit can appear a daunting task. If you are within five years of considering a transition and your business aligns with our minimum of $25 million in exit value, please contact us for a consultation. Our Deupree Alexander Team is prepared to ensure you are prepared – to exit your business successfully and for the wealth of life that comes after.

Disclosure:

The information and analysis provided in this document and any other related written or oral communication is limited in scope and is not intended to represent a comprehensive financial, estate or other review. This document is based on reliance on information provided by the advisor and the client, and we do not guarantee that the information is accurate or complete.

The information and analysis is provided solely for discussion, educational and informational purposes, should not be relied upon when making any decisions and IS NOT LEGAL OR TAX ADVICE. All clients must consult with their own tax and legal advisors regarding the information and analysis provided and should do so prior to making any decisions or taking any actions to ensure that the actions are appropriate for their situation.

State income, estate and inheritance taxes may have been considered. However, future tax legislation or government administrative actions could change, reduce or eliminate one or more currently available planning strategies addressed in this document.

Examples provided are hypothetical and all illustrations are based on generic assumptions. Results will vary when variables change.

THERE IS NO ATTORNEY CLIENT RELATIONSHIP established by the Raymond James associates providing the information and analysis in this document or any related communications and conversations whether written or oral.

The preparer; Raymond James Financial Services, Inc. member FINRA/SIPC; and Raymond James and Associates, Inc. member New York Stock Exchange/SIPC; are not responsible for any errors or omissions in this document.