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Starting Your Exit Planning - When and Where do I begin?

Posted by Georgia Maistros | Sep 30, 2022

Exit Planning should be talked about from the beginning. The main issues I am seeing is that Business Owners books and Tax Returns do not correctly reflect the true picture. The Business Owner needs to know their Tax Basis, the value of their investment, and have a growth plan.  This should be part of their Annual Meeting.  If an owner is working the business, they should be paying themselves and put other Fringe Benefits in place that will diversify their personal investments. The Business Owner wears many hats, but they need to separate those roles and look at their value.

Many businesses I represented Buyers on, were good businesses, but were not ready for sale. The owner wanted Bank Financing, and the books did not show the ability to do so. The owner either had to hold the note and in most cases lower their price.   This is likely why 80% of the businesses don't sell when put on the market.  

Small Business Owners need a team of Trusted Advisors who work together for the Owner and the Business. There must be long term goals and then these are put into monthly and annual goals. The main goal is to put the Due Diligence in place to protect and grow the company.  This team usually is the Business/Tax Attorney (myself), Accountant/Tax Preparer, Banker, Financial Advisor, and Business Insurance Agent.  The team may add a Business Coach depending on the client, and others may join and leave the team during the life of the business.  

One of the last deals I completed for a Buyer, the Business Owner needed out and that was reflected by his actions (lowering the price on day 1 by 1/3). The Business was on the market for a long time.    In working with the new owner, I find that though he negotiated a good deal for the, there was much that the owner did not reveal.  And this changed my client's action plan to reach his first year goals.  The new owner had to not only evaluate, but to be present.   Many owners want to purchase an investment, but if you do, you still must be active in planning, review and goal setting, AND you must hire a strong leader and pay them what they are worth.   In my client's case it was not mentioned that the Manager was leaving for another endeavor.   It was a good thing, we had decided from the start that he would take over this role and the pay.   This highly paid employee was part of the problem with the business.    There was much to do to get the employees working well, the product back to where customers would come back, and a real focus on how the new owner would get the value of the business back up, and then work on his 5 year plan.

Also this year I worked with a Procative Business who wanted to move forward with other goals and was looking to sell the business in a 3-to-5-year period.  In reviewing their books, we discovered why they were not getting the right loans from banks they needed, and they found that they were missing much on paper that they were really doing a great job on.  Once we were able to get the books in order and review the issues they should focus, it was discovered that they are likely closer to the 3-year time period to put their business on the market.   They also are looking to sell a a higher value.  Originally, they thought they would close the business. 

When I work with a Business, we do an Annual Review.  This entails: 

1.  review the goals they set in writing at the end of the prior year and look at the numbers to see how they performed.

2.  we review issues they had, and what their needs are currently to determine the focus for the next year. 

3.  they set next year's goals and look at where they want the business to be in 3 to 5 years, while also reviewing what they personally want.

4.  this allows us to set up timelines to review opportunities and work on problems; it also allows us to set up budgets.  

5. we review the purchasing needs, tax issues coming up and how to structure the deals, so their financials stay strong; and

6.   we update their corporate books. 

There are so many things that most business owners don't do until they are in trouble.   By doing this annually and working with myself throughout the year, problems are spotted more quickly and/or resolved more quickly with less cost and focus in on building up the business and its people.  

About the Author

Georgia Maistros

Review Obstacles with the End in Mind and See Opportunities  Working with Business Owners is enjoyable yet challenging.  They are ALL IN, to steal form a popular slogan of a local team.   They have grown a business from a vision in their head to something that supports their family, employees an...