How to Plan a
Successful Business Exit
Jeff Christensen & Holly Quinn
NENEDD Business Loan Specialists
Economic Development Financial Professionals
Accredited Business Planning Advisors
Exit & Succession
 What it means to your Family, Community and Region
 Challenges
 Exit Opportunities
 Who can Help & How
Lessons Learned
What can go wrong?
 1st Attempts Often Fail
 Wrong Price
 Buyer not Qualified
 Work With Experienced Advisors
 Explore All Exit Options
 Business Value
 Buyer Needs
 Room for Improvement
 Last Minute Negotiations
 Failing to Plan….Planning to Fail
The Coming Wave
 Where Are Things Headed
 Impacts on the Local Community
 What’s started
Impact – What are the Factors
 Business Owners are Aging
 52-70% of Business Owners will leave by 2017
 Small to Mid-Sized Businesses



1/3 Transfer to Family
1/3 Sell to Someone Else
1/3 Sell Inventory & Close the Door
 Economic Downturn
 Business Owners Think They’ve hit Bottom Already
 Retirement is on Hold….Hope to Sell at a Later Time
Impact – What are the Factors
 Outside Factors will Force an Exit
 Less Financing Available
 Banks have tightened Lending Practices

Due to Regulations
 Fewer Entrepreneurs and Buyers
 Lack of Qualified Buyers


Buyer Lives Elsewhere – Profits Leave Community
Absentee Owner
 Local Owners = Local Wealth
Uncontrollable & Risky
 Family Succession can by risky
 65% of Family Successions FAIL

80% within the 1st 2 years
 Do Family Members want the Business?
 Not all Exits can be controlled
 Owner is Key Employee – Forced Early Exit

Illness, Disability, Death
Goals
 Maximize Number of Exit Opportunities
 Maximize Business Value
 Minimize Cost of Exit
Buyers
 Businesses are Sold to Individuals
 Seeking a Life Style
 Buying a Job
 Buyer are Looking for:
 Bragging Rights
 A Good Deal




Good Management
Up to Date Inventory
Website/Advertising/Marketing
Curb Appeal
Business Value
 Value of Business
 20% of Business Owners Undervalue their Business

Leaving Money on Table
 Business Must be Priced Correctly
 Over Priced to Cover other Expenses
 Buyers Consider Sale Based on Past Performances

Future Performance/Earnings
 Excess Market Time = Increased Risk

Loose Clients, Employees, Suppliers
Fair Market Business Valuation
 Required for a Qualified Business Deal
 70% of Businesses don’t sell
 Seller isn’t Motivated
 Financials in Disarray


Unreported income
Self Accounting System
 Using Business to Pay for Items not Related to the Business
Business Owner’s Goals
 Maximize Benefits
 Minimize Taxes
 Look for all Cash Deal
 No owner Financing
 Little or no Goodwill
 Maximum Sales Price
Success - Opportunity
 Buyer wants more Success
 Looking for Opportunity – not repetition
 Seller must be Truthful
 Need to fix Financial Issues
 Seasonality
 Employees
 Contracts
 Lease/Ownership of Building
Financial Demands
 Business Must Meet 3 Financial Needs
1.
Return On Equity
2.
Pay New Owner Salary & Benefits
3.
Make Loan Payments
Example
 $1,000,000 – Total Purchase Price
 $200,000 – Equity (20%)
 $800,000 – Loan (80%)
 $30,000 – 15% ROE
 $60,000 – Salary/Benefits
 $80,000 – Loan Payments
 $170,000 Cash Flow NEEDED
Financing
 80/20%
 Required Equity Injection
 SBA or USDA Guaranty
 Lender Requirements
 Volatility of Market
 Type of Business
 Financial Information – Past 3 years
 Income & Expense Statements
 Balance Sheet
 Accounts Payable & Receivables
Business Reorganization
 Change Operation
 Demonstrate Opportunity
 Reduce Expenses
 Reduce Excess Compensation
 Refrain from Discretionary Spending
 Simplify Financial Reporting
 Report ALL Income
Unreported Income
 $50,000/year – saves approx $20,000 on taxes
 Reporting Income Increases Cash Flow
 Increases Business Value at Time of Sale
 Two Times Business Owner gets Money
 Operating the Business
 Time of Sale
 Additional Purchase Price of the Business
 $10,000 Additional Financing Required
 Leaving $40,000 Additional Cash Flow
NENEDD’s Business Transition &
Success Program
 Work with NBDC
 Offer 9 Exit Opportunities
 Process Requires Teamwork
 Role is a Coach
 Work with Existing Advisors

CPA, Attorney, Banker, etc.
 Compliment Current Advisors


Provide Additional Resources
Everyone Works Towards the Same Goal