top of page

Exit Planning: Don't Leave Extra Cash on the Table When You Sell Your Business.

If you want to sell your business, you have to have accurate numbers. But if you don't know your numbers and ask the right questions, you could be leaving a ton of money on the table at a future exit.


Exit Planning: Don't Leave Extra Cash on the Table When You Sell Your Business.

Here's how to avoid that problem: Do a Triggering Event.


A Triggering Event is a five-step process created by Chris Snider of the Exit Planning Institute, specifically designed to identify where your business can make improvements to close the gap between its own value and its potential future value at ultimate sale. Here are the steps:


  1. Recast Your Financials: To add back non-recurring expenditures, to normalize excess such as extra owner, compensation, and to subtract expenses that might go up after sale (like discount rent on the building you own). This will lead you to your “real numbers” that actually matter to a buyer. You must remember that if your business is selling for a multiple of recasted EBITDA, every dollar that you can add back to the recasted numbers (as long as you can justify it) is worth many more when you sell. If you are going to renegotiate with suppliers or subcontractors to reduce your expenses and increase your profit, do so soon. Establish the track record at this business savings is a normal part of life, not a recent development that should be discounted.

  2. Conduct Financial Analysis and Benchmarking: Can you see any trends and your numbers - either positive or negative - that will affect a buyer's perspective on your business? If you can demonstrate a sustained profitability growth over several years, this is empirically more attractive to a buyer. If you have the track record of systematically trimming expenditures and increasing profit margins, these again are points in your favor. How does this stack up against other businesses in your industry? In your particular size? In your geographic region? Knowing how you compare to similar or adjacent businesses can be helpful in determining where you stand.

  3. Determine Your Range of Value and Profit Gap: Now that you have recasted financials and benchmarking done, you know trading multiples in your industry. With the help of a trusted third party such as a financial advisor, investment banker, or business broker, you can see how average companies do when they go to the private capital markets, and you can see how that compares to best-in-class companies.

  4. Complete a Business Readiness & Attractiveness Scorecard:  From a personal standpoint, do you have a written personal plan or a personal financial plan? Do you have an up-to-date knowledge of net proceeds from a potential business sale? Do you know which types of sales are more lucrative than others? How well do you and any other owners understand your transition process? From a business perspective, is your corporate documentation up to date and accessible by all relevant directors? Can you demonstrate effective expense management? Do you have up-to-date and audited financial statements? Do you understand your primary revenue drivers? This is significant homework, but it goes right back to identifying money that you could be leaving on the table at a future sale, and systematically closing that gap. If your business stands to trade at a 5X multiple, every $200,000 you find in this process could be worth $1 million. This is why you do the work.

  5. Place Your Business into the Range of Value and Determine Your Value Gap: Now that you have finished your personal and business assessments in Step 4, you can place your business on the range of value. The difference between the best-in-class companies and your company represents your value gap. Odds are good that based on everything that you have done to this point, you know what aspects of your business need the most work so that you are not leaving money on the table for a future sale. But odds are also good that the work required can risk taking your focus off of the business, which can be a self-defeating exercise. So at the risk of sounding self-serving, we recommend that you engage professionals in and beyond this process.


And, as we have said before, you might get through all of these initiatives and realize that the business that you have worked so hard to improve is something you want to continue to run. This is why exit planning feeds right into growth planning.


Don't believe us? Try it.


P.S. You can learn more about the Triggering Event by reading Chris Snider’s book Walking to Destiny. And we definitely encourage you to do so.




Any opinions are those of Timothy Weddle and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.

Comments


bottom of page