A shortfall from the proceeds of your business exit can have a significant impact on your retirement plan or force you to lower the standard of your retirement living.
In the worst case scenario it might mean that you cannot afford to retire.
Business Value Gap (BVP) and Business Exit/Sale Ready
Business Value Gap is the difference between your current business value and what you want to realise when you exit your business.
In money terms that gap is what you need to achieve your expected standard of living in retirement.
Business owners need to understand the value of their business, the size of the value gap, and how to improve the gap through a business value improvement strategy and actions to be “Business Exit/Sale Ready”.
A proven methodology
To achieve the outcomes above, a proven methodology and experience is critical. I recommended eight steps for a successful business exit:
- 1.Understand your business exit aspiration/requirement.
- 2.Determine the current business value using a business valuation methodology.
- 3.Determine the Business Value Gap (BVP).
- 4.Formulate a strategy and actions for business value improvement and business exit alternatives.
- 5.Quantify potential future business value within a time frame.
- 6.Implement business exit/ value improvement strategy and actions.
- 7.Monitor and measure improvement on a regular basis, and determine corrective actions to achieve your outcomes.
- 8.Execute business exit actions, whether it is a family succession, sale, management buyout or some other alternatives including merger and acquisition.
The ability to demonstrate a good past-sales, profit and future earning/profit plus cash flow are critical elements in the determination of the business value.
Three years of financials, tax returns and the current business sustainability/growth strategy plus three years budget will be most helpful to sellers and buyers.
Other pertinent information such as customers, competitors, operation, marketing/sales, human resources and suppliers will also be relevant to the buyer, which should be incorporated in the business sustainability/growth strategy document as part of the strengths, weaknesses opportunities and threats analysis.
Achieving the desired outcomes
In achieving your retirement outcomes, being business exit/sale ready is critical to ensure you achieve maximum business value maximization.
You may also need the relevant information for buyer’s Due Diligence (detail investigation of every area of business), which is normally carried out by the buyer’s business advisor or accountant.
Eric Tjoeng is a past winner of Australia and New Zealand Partner of the Year, Best Performer, Marketer of the Year, Team Player, and Community Contribution awards at CAD. Contact him at erict@cadpartnerts.biz
