Planning Your Exit Strategy

Planning Your Exit Strategy blog

Alex Jensen, CFP®, CPWA®, AEP®, CEPA® , Wealth Strategist 

I recently came across a surprising statistic while completing course work for the Certified Exit Planning Advisor (CEPA) designation through the Exit Planning Institute. In a survey to business owners that had exited their business, 76% of respondents indicated feeling profound regret one year after the exit. 

An exit opportunity is never guaranteed.

These business owners painstakingly built an attractive business, and were among the fortunate few to exit, only to be met with the feeling of profound regret afterward. Out of 10 businesses that go on market to be sold, only two will sell—80% don’t. How do we change that statistic? 

There are numerous drivers behind exit regret. Some business owners simply feel unprepared while others feel as though they didn’t receive the desired value for their business. 

Feelings of regret can be personal.

Oftentimes, owners are unprepared for the transition because they have not planned for life after an exit. For decades, they’ve been hyper-focused on growing the business.  

In the final 12 months leading up to a sale, their energy, time, and attention is consumed by deal points and making it through due diligence. They haven’t had time to prepare for their next evolution mentally and spiritually. It’s logical that an owner might have feelings of regret if they’ve abruptly lost a sense of purpose.  

Feelings of regret can be financial.

Some owners feel that they’ve left money on the table post-exit. This is driven by an incongruent belief of their company’s value relative to the market. Less than 6% of the 250,000 US companies ($5MM – $100MM in sales) that try to exit by 2030 will sell at their desired value. The driving factor: lower intangible value.  

Accounting systems are great at measuring tangible asset value. They’re standardized, generally accepted, and closely monitored. However, intangible assets are another story. They’re nebulous and hard to see within a company. Yet, we know they’re the key to unlocking value.  

80% of a company’s value usually rests within its intangible assets:  

  • Human Capital – the value of your talent 
  • Customer Capital – the value of your customer relationships 
  • Structural Capital – the value of your systems & intellectual property 
  • Social Capital – the value of your brand and culture  

With focus on growing value, alignment of business, personal, and financial goals, a company can potentially double its value in three to five years. Most importantly, business owners can avoid feeling profound regret post-exit! 

How do we value a company?

Several different valuation techniques exist to value a company. Let’s focus on a straightforward formula: EBITDA (earnings before interest, taxes, depreciation, amortization) x MULTIPLE (tangible and intangible assets) = VALUE 

EBITDA x Multiple = Value 

Depending on the size of the company, industry, private capital market environment, and a multitude of other variables, a business will trade in a range of multiples. This range is out of a business owners’ control. What is in the business owners’ control is where they fall within the range of multiples.  

How do we increase the multiple?

Increasing the multiple for the business, ensuring a successful exit and reducing feelings of regret post-exit can be done through a practice called The Value Acceleration Methodology™ as taught by the Exit Planning Institute (EPI). 

By conducting a personal, financial, and business assessment an owner can execute a prioritized action plan running along two concurrent paths. Path One will address vision and values, getting the owner ready for exit (personally and financially), while Path Two will focus on business improvements and risk mitigation. These paths are closely linked and ultimately cross at the Master Planning stage.  

Exit planning shouldn’t rely on timing. Instead, it should place emphasis on the actions that can be implemented today to increase the value of your business in the future.  

When should you start planning your exit strategy? If you’re a business owner, your exit path should already be on your mind, no matter how far away it might be. Schedule a consultation today. 

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