Money Matters

How to Increase the Value of Your Business and Exit Your Company Successfully

22 Sep 2020 by: Matt Showley  ,

If you’re a business owner who is ready to exit your company, there are steps you can take to increase the value of your business and make it more attractive to potential buyers. Let’s discuss these steps and the factors you should consider to transition your company to new ownership successfully.

Start Your Planning Now

The sooner you can outline your exit strategy, the more prepared you’ll be as you approach a sale.

  • Determine the type of buyer you prefer. You may want a strategic buyer, a financial buyer, or an internal buyer, all of which will imply a different price point and approach to operating the business. 
  • Assemble your team. You’ll need a team of professionals, including attorneys, financial advisors, and accountants, to help you seal the deal. Ensure you’re communicating expectations early, and everyone on the team is on the same page.
  • Build your strategy. When you know the type of buyer you want in mind, you can formulate the rest of your plan based on what that particular buyer values most.

Prepare Your Business

As you launch your exit plan, you’ll need to contemplate various areas of your business to prepare for new ownership.

  • How much is your company worth? Get a sense of your company’s value through a valuation or other means before you go to market.
  • Understand your partners’ needs. A majority or minority owner will each get a pro-rata share of the sales price, but may have different goals for the transaction based on their current financial situation. An owner who is counting on the sale from a financial standpoint versus an independently wealthy owner may negotiate the deal differently.
  • Ensure your financials are audited and accurate, which will be attractive to potential buyers. Keep in mind you may operate the business differently from them. For example, some business owners run personal, one-time expenses through their company or adjust salaries and other operating costs to above- or below-market value, which affects the business’s total valuation. Know ahead of time how potential buyers may adjust the numbers to meet their operating needs and if the adjusted value will be sufficient to move forward.

Position Yourself for a Successful Exit

As a purchase nears, implement an action plan that prepares you and the new owner for a successful transition. 

  • Focus on the after-tax amount of the sale. A critical step and driving difference in this amount will be in how you structure the deal. There are ways you can sell for an overall lower price but ultimately keep more money. For example, spreading a sale over multiple years rather than one may lower your tax bracket, putting more money in your pocket in the long run.
  • Create future revenue. As a sale approaches, you will add value to your business and revenue certainty in a buyer’s eyes if you can secure contracts that extend into the timeframe the new owner will be stepping in. 
  • Plan a transition phase with major clients. Another way to add value and increase the new owner’s confidence is to help existing clients transition smoothly. You can do this by discussing new ownership with them or introducing a select group to the new buyer. This can help with client retention, making the new owner more comfortable with respect to future recurring revenue.

You’ve spent years building your business, and when the time is right to exit, making a smooth and financially advantageous transition is what you and your family deserve. At CCMI, we specialize in helping business owners create action plans that preserve and protect their life’s work long after passing the torch. Contact one of our advisors to start building a strategy to meet your needs and those of a new owner.

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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Matt Showley is a CERTIFIED FINANCIAL PLANNER™ professional and Accredited Estate Planner®️ who advises individuals, families, and business owners on portfolio management, financial planning, tax and estate planning, real estate, cash-flow modeling, and education planning. In addition to his role as principal and owner, Matt continues to oversee the firm’s operations and work with new and existing clients. Matt joined CCMI in 2006 and has contributed significantly to the firm’s wealth management and financial planning processes and client relationships.

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