In our last blog we talked about why most business owners don’t realize a successful sale. According to the EPI Owner Readiness survey, over 70% of businesses fail to sell and 70% of those that do are not happy with the outcome.
The key reason is planning. A successful sale requires a considerable amount of planning and thought that should start well before you put the For Sale sign out front.
This blog will focus on that preparation. What planning do you need to do to be ready when the value is there and the window is open.
The first step is about you; what are your personal financial goals, where do you stand currently and what after tax sale value do you need to move to the next phase of your life. We’ve all done our back of the napkin version of this, but if you want to be sure, if you want to include all those bucket list items you’ve kept to yourself and want to experiment with different scenarios in real time – a second home, travel, charitable donations, family issues – you need a financial plan.
Here at RBC Wealth Management, the RBC Wealthplan® is the foundation for our clients. It’s our dynamic financial planning tool that drives analysis of possible future outcomes. What is your probability of financial success.
We enter your assets and liabilities, your cost of living, your big dreams, your future cash flow (The Sale!) and see where you stand.
The dynamism comes from inputting different scenarios, numerical or lifestyle, such as:
- A different asset allocation and subsequent return expectation
- Retire (sell) earlier or later, at different after-tax numbers
- Make a large purchase (boat, beach house, vacation), with or without selling your primary residence
Here is a link to a sample report. There is no charge for this for clients or qualified prospects. https://infonet.corp.isib.net/contents/WealthPlanning/Joe_and_Pam_2022.PDF
The next step is a business valuation. What is your business worth to real buyers. If the valuation you need is there (we’ll come back to what to do if it isn’t) it’s time to start considering the structural options of the sale; management buyout, ESOP, strategic buyer, etc. This is a discovery process that may not lead to a firm, final decision but needs to be explored from both a strategic and tax-conscious perspective. There may be upfront preparation needed to achieve the most efficient outcome; trusts, pre-sale transfers, management changes, restructuring. You don’t want to get to the signing and realize the net after-tax number is not what you were expecting.
If the business value is not where it needs to be you obviously need to increase it. Growth and profitability are the two obvious metrics of improvement and we offer many services and tools for business management. But there are also other potential value accelerators – senior management restructuring, customer concentration, operational documentation, among others – that may be opportunities for you with the potential for both improved EBITDA and higher multiples.
No matter where you are in your exit planning, The Dimino Group at RBC can help. Our 30 plus years of business advisor experience, including our own middle market ownership background, combined with the RBC focus and capability set has built a financial practice with a history of successful business exits.
Please contact us for an exploratory conversation to see if your goals and our expertise are a match. Please contact me via email at bruce.gelfand@rbc.com(mailto:bruce.gelfand@rbc.com) or by phone at 212-703-2272.