Enhancing Value When Planning a Business Exit StrategyEnhancing Value When Planning a Business Exit Strategy
Transitioning from life as a business owner to a retiree should be thought of not as a moment in time—but as a journey.
It’s one thing to arrive at a value for the business. But a trusted professional valuation advisor can make a big difference to the client’s planning by valuation enhancement of the client’s business. Once the company’s current worth is known, bring in experts to evaluate how to make it worth more.
When setting out to enhance the value of a business, no department or dimension of the company should be left unexamined. Valuation enhancement looks at a company’s people, processes, planning, sales, marketing, legal, operations and more. By diligently vetting each of these areas, strategies for enhancing value can be developed and implemented.
People Matter
People comprise a key part of the value of many closely held businesses. For example, the owner of a closely held business may be critical to the day-to-day success of the company. In some cases, the company wouldn’t last long without this individual. This is an important factor when selling to a new (unrelated) owner, who may or may not want the old owner to stay involved. Owners who transfer their skills to the people who run key elements of their business ensure that it can function successfully without them. Making sure the right staff is in place in all key departments may thus enhance the value.
Improving Process and Technology
Owners who’ve been running their businesses for a long time are often behind the curve when it comes to technology. For example, larger companies typically use CRM systems, but small to midsize companies are less likely to have adopted such technology. A CRM software integration can track all of a company’s prospects, clients, service requests and communication. It improves information flow and management and helps raise service levels, which improves client relationships. When you can demonstrate to a prospective buyer that you have secured the company with process-enhancing technology, the buyer might be willing to pay more for it.
The Numbers
Another way to look at enhancement is the analysis of the key financial statements. Income statements, balance sheets and cash flow all provide insights into opportunities to enhance the value of the target business. An income statement can tell you a lot about outcomes, which can be traced back to the effectiveness of certain departments like marketing or sales. A balance sheet can also help a business owner decide when and how to pare assets of the business and determine how many assets she wants to own under the business.
Reducing Customer Concentration
Customer concentration refers to the distribution of revenue across a company’s customer base. From a value enhancement perspective, a company with a lower customer concentration has less risk of losing significant revenue if it were to lose any one customer. Diversifying the customer base is yet another way business owners can enhance value.
Pivoting for Profit
Companies that can identify new opportunities and new niches to fill might be in a better position to increase their value in the post-COVID world. For example, clothing companies are suddenly making masks as fashion accessories. Biotech companies are racing to find a vaccine. Manufacturers of commercial office furniture are weighing a shift to home office furniture for a world that may increasingly work remotely.
Plan for the Journey
A business owner’s personal retirement planning and business exit planning are interconnected and should be treated as one. Keeping them separate can result in poor planning, greater tax exposure and lower economic returns for the owner. Transitioning from life as a business owner to a retiree should be thought of not as a moment in time—but as a journey that can be two or more years in the making. When treated holistically and led by a team of trusted, expert advisors, the outcome is far more likely to be a financially favorable one.
