Paula Barrett, CPA/ABV, CVA, CGMA, CEPA, is a Partner in the Business Consulting Services Group of RKL LLP. She specializes in business valuation and litigation support services, assisting clients in the acquisition or sale of closely-held businesses and general business planning services. Paula is a credentialed Certified Exit Planner through the Exit Planning Institute. She can be reached at pbarrett@RKLcpa.com.
The unprecedented events of the past six months have reinforced the importance of preparation for both the expected and unexpected. The underlying value of a business serves as the foundation for any response, whether that’s continuity of operations, reimagined services and products or dissolution of the enterprise. Whether you’re in growth mode, starting to consider future plans or nearing retirement, it is important to optimize your business and maximize its value.
Are you sustaining a lifestyle or creating value?
Business owners focused on sustaining a lifestyle are only focused on short-term results and immediate financial outputs. A value creation approach extends this focus to long-term planning and solid fundamentals, by answering questions like:
- How attractive is the business from a buyer’s point of view?
- What are you doing to mitigate risk?
- How ready are you and the business to transition?
Exit planning is a process, not an event
Depending on the answer to that last question, owners may have not yet considered the next chapter of the business and their lives. While the exact specifics can wait, it is never too early to begin the exit planning process, which is defined as the conscious effort to grow enterprise value in a manner that enables the efficient conversion of that ownership into personal freedom and peace of mind.
An early and intentional focus on exit planning ensures that the owner and his or her family wealth are at the center of the plan. The exit planning process can also be used as a way to develop the next generation of company leaders and serve as a roadmap for the transition, whenever it would occur.
The three-legged stool of exit planning
Exit planning is often referred to as a three-legged stool. For stability, the process must cover all three legs: maximize business value, personal financial planning and life-after-business planning.
- Maximize business value: Your business needs to be both smart (financial strength, operations, capital availability, etc.) and healthy (culture, communication, engagement, etc.). Remember that three types of capital – human, financial, and intellectual – fuel your business. All of these factors must be evaluated and continually nurtured as part of the overall business value.
- Personal financial planning: What are my needs and wants? Can I achieve my personal objectives without the income from my business? It is critical to discuss these questions as early and often as possible with your financial planner or wealth advisor, who can help you develop a plan for a comfortable and fulfilling life.
- Life after business: If you had the time, what would you love to do? Identifying interests outside the business can set the stage for life after it. Far too many owners fail to consider what they will do in their next chapter, and wind up with a regretful or rocky transition.
Now that we’ve explored why business value is so important to your present and future, the next phase is to accelerate it. Register now for an October 21 DVFBC Best Practice Event, hosted by me and Jeff Green from PROXUS, that will equip you with practical tips to increase the value of your business.