We have to start thinking positively about the words “exit planning.” You say the words, and owners shut down – could be because of emotional attachment, the fear of change, lack of resources…. Could be worse – could be lack of awareness or procrastination. But guess what? Studies have shown that 75% of those who exit “profoundly regret” the decision within 12 months (Price Waterhouse). How can we change the paradigm and become part of the 25% (or help our clients become part of the 25%) who enter the third act of their lives without regret?
We have to change the paradigm of fear surrounding exit planning and accept that good exit planning is really good business planning. By the way, exit planning is not just about preparing for a future sale or transition. It helps owners build a stronger, more valuable business, make informed decisions, and adapt to changing circumstances. This really means that the exit planning concepts described below are relevant to business owners, even if an exit is not planned in the near future.
I recently received my Certified Exit Planning Advisor (CEPA) credential. To achieve this credential, I attended specialized training in the field of exit planning. The role of a CEPA is to assist business owners and investors in developing and implementing comprehensive exit plans to achieve a successful transition or sale of their business. A CEPA is trained in many aspects of exit planning including:
Where we at Capital Valuation Group can assist in this process is by helping the business owner understand the value of their business. Business value is the starting point for developing strategies to manage or maximize value.
Managing or maximizing business value starts with understanding business value – where are you now? How do the changes you make impact your company’s value? Performing routine business valuations to monitor business value will help an owner shift from managing your business by focusing singularly on revenue growth to managing the business for value. This is important because managing for value prioritizes long-term initiatives. While revenue growth is important, it is not the sole determinant of a company’s value. Managing for business value ensures a more holistic and sustainable approach to business management.
We can also help an owner understand whether they have a “profit gap” or “value gap.” The term “profit gap” refers to the difference between the actual profit generated by a business and the desired or targeted profit. By narrowing the profit gap, businesses can increase their profitability, strengthen their financial position, and improve their long-term sustainability and competitiveness. The profit gap analysis serves as a valuable tool for financial planning, performance evaluation, and decision-making, helping businesses align their efforts to achieve their desired profit targets. The term “value gap” refers to the difference between the current value of a business and the expected or desired value of the business. The value gap is an important concept in exit planning because it highlights the potential for increasing the value of a business before an eventual sale or transition. By identifying the value gap, an owner can also identify and strategically implement plans to increase the value of their business over time.
In today’s dynamic business landscape, where change is inevitable, exit planning provides owners with a roadmap to secure their future and maximize the value of their hard work. By embracing exit planning as an integral part of their overall business strategy, owners can confidently navigate the path to a successful exit, leaving a lasting legacy and realizing the rewards of their entrepreneurial journey.
If you would like to discuss a specific business situation please reach out to us through the Contact page or call us at 608-257-2757 and we’ll connect you to a business valuation expert on our team.