Sooner or later, every business owner will exit his or her business. It might be uncomfortable to consider, but sooner or later, you WILL leave your business. You may leave due to retirement, disability, or even business failure. Unfortunately, many business owners believe they can worry about an exit plan "later" only to find that later has become too late.
You have spent money, time, blood, sweat, and tears to build your company. Your family and your employees have relied on your leadership, guidance, and hard work as you have built your company over the years. The business you have created is your key asset in life. Don’t squander its value at the most critical time of the business lifecycle – the exit!
What is Exit Strategy and Planning? Business owners know how to run their companies. They have sales forecasts, marketing plans, financial projections, and budgets. Business owners also have key questions about their business, such as:
How do you optimize the value of your business? How do you harvest the value you have created? How do you maximize your benefit from the harvest? An Exit Strategy helps you take these questions to the next level:
What are the options to exit my business? Transition to my children / family Sell to my management / ESOP Sell to an outside party For each of those scenarios, what would be the monetary value of my business? Will I have what I need to retire when the business is transitioned? What will be the terms of my exit? What security will I have that I can achieve my goals for retirement? What will happen to my employees and customers? How do I position my business to achieve a successful exit? From Exit Strategy to Exit Planning to Exit Achieving a successful exit from your business requires a multi-phase process. All businesses should have a planned exit. Continuously harvesting cash from the business extracts all value from the business, and passing the business to the next generation requires a successor and careful tax planning. Choosing to sell your business to an outside third party requires business execution and planning. While all exit scenarios are possible, the most successful exits will be carefully planned in advance.
We encourage you to contact the Abraxas team today for a frank, and critically important, discussion of your exit planning options.
Frequently Asked Questions Why should I hire Abraxas if I'm an individual buying a business?
Buying a business is complex. It's our role at Abraxas to understand our buyer's objectives and then to search out a business that best meets those objectives.
Once a prospect is identified, we prepare a term sheet, again with our buyer's objectives in mind.
During the entire negotiation, we manage the relationship between the buyer and seller - which helps to assure a smooth and efficient due diligence process.
Finally, we work with the attorneys, and other resources such as bankers and accountants, to develop closing documents that best meet our client's needs.
Why should I hire Abraxas for a strategic acquisition?
At Abraxas, we are particularly well-suited for working strategic acquisitions because the members of our team have actually sat in the chairs of multiple business disciplines - something we consider very important to evaluate investment potential.
We begin by understanding our client's objectives in terms of why they are acquiring the business and how it fits into their existing operation.
We next perform a targeted search, identify prospects and prepare a term sheet which highlights important business issues. The challenging part is getting from this term sheet to the Closing Table because there are so many moving parts, such as financing, due diligence, and the preparation of closing documents.
The most important thing to understand is that throughout the entire process, we are effectively managing the relationship and negotiation between client and seller.
What makes a business valuable?
Business buyers are interested in a business for various financial, and often personal reasons.
So there are numerous aspects that could make a business valuable.
But at the heart of a valuation process is cash flow, the amount of cash a business is producing, and the risks associated with maintaining or increasing that level of cash once the business is purchased.
Buyers determine cash flow risks by elevating such things as a company's unique position in the marketplace, the consistency of its sales process, and reliability of contacts with suppliers and key employees.
Having solid operational procedures and processes in place significantly reduces cash flow risk and increases the value, and marketability, of any business.
Who would buy my business?
There are three principle types of buyers:
An Individual Buyer who is buying a business that will generate income for himself. A Financial Buyer, such as a private-equity firm, that is buying the cash flow of the business to benefit the investors represented by the firm. A Strategic Buyer - a company who is buying another company to complement or enhance another business. Each type of buyer requires a different approach to the sale.
Individual Buyers typically expect to be an active manager of the business, and so we work with them to visualize themselves as day-to-day business owners. Financial Buyers are highly-focused on the cash flow of the business and often undertake grueling analyses of the business in order to justify the purchase to their investors. Strategic Buyers are buying a business both for the business itself and for what that business will do for their existing business. Strategic buyers are plugging holes in their product lines or service offerings, buying a new geographies, acquiring customers, or at times, eliminating competition. With Strategic Buyers understanding how their existing businesses would benefit from the acquisition enables us to understand how much of a premium must be paid to acquire. When do I tell my employees and customers that I’m selling the business?
Planning for the transition of business operations will begin on the day a term sheet is signed.
The Abraxas team will direct the development of a transition document that includes a detailed communication plan. This communication plan will identify all of the stakeholders that need notification, the message to be delivered, and the timing of those notifications.
Transitioning a business is never easy. But with Abraxas methodologies guiding the process, stakeholders are prepared to move the business forward once the deal is completed.
What other resources will I need to sell my business?
It takes a village to raise a child...
...and it take a team to sell a business.
Think of Abraxas as the quarterback that is going to get you to the Closing Table. To be successful, we need three other position players on our team to prepare for the final negotiations.
A Transaction Attorney whose everyday job is negotiating corporate transactions for businesses the size of yours. This attorney needs to have access to many different types of legal expertise, from employment law to real-estate law to intellectual property. A Tax Accountant who has deep experience on the tax law as applied to business transactions. While most tax accountants are very adept at compliance - filing the various returns each quarter and each year, we need a tax accountant that is an expert on looking at tax treatment of the sale of a business. A Financial Planner . It is Abraxas's job to get as much as possible for your business. It's the financial planner's job to help you keep as much as possible from what you get paid for the business. What is the process of selling a business?
At Abraxas, we strongly believe there is, in fact, process for selling a business.
The basic approach is this:
We get to know your business at a detailed level and use that knowledge to write a book that describes your business in ways that are compelling to a prospective buyer. We source buyers for the business. We assist the prospective buyer in assessing the business, and we negotiate with the buyer to get to an agreed letter of intent or term sheet. From the offer to the Closing Table is a tortuous journey. The buyer's bankers come in and do their own assessment of the company. The buyer's due diligence team comes in and does detailed reviews of the seller's books of record, assets, corporate standing, and operations. And the transaction attorney's negotiate all of the documents needed to close the transaction. During this period from offer to Closing Table, the deal is incredibly fragile. Through our management of the moving parts and, just as importantly, our management of the relationship between our client and the buyer, we have been inordinately successful in getting our deals to the Closing Table. What is my business worth?
Another Business value is not an easily calculated number, as it depends on many variables.
At Abraxas, we think that enterprise value equals cash flow divided by risk.
Cash flow is the amount of money generated by the operation of the business before the owner takes a salary or benefit out of the business. This is called different things, often owner's discretionary earnings or adjusted EBITDA.
Different cash flows have different values: for instance, the cash flow generated by a manufacturing business is worth more than the cash flow generated by a professional-services business.
And, two businesses in the same industry, with the same cash flow can have different values. This is where the concept of risk comes in. Here we define risk as a function of the sustainability of the cash flow: what are the chances of the cash flow after the sale will be equal to or greater than the cash flow before the sale. Factors that could impact this include:
Strength of the management team The importance of the seller in generating the revenues of the business Customer concentration While the value of a business is, in some ways, like beauty in the eye of the beholder, there are ways enterprises value can be estimated. We would enjoy the opportunity to talk with you to explore the elements of value you have built into your business.
What happens if there is a conflict during the selling process?
There will be! Conflict is inevitable. But conflict actually is an opportunity to create the best solution for all.
By analyzing the root causes of conflict, including possible emotions underlying the issue, and guiding constructive dialogue between buyer and seller, the Abraxas team’s expertise in negotiation and conflict management keeps the transaction moving to the Closing Table.
How do I maximize the value of my business?
The value of the business must be viewed from the perspective of a buyer. A buyer is looking for a solid operational structure that can exist without depending on the expertise of the current owner.
What are the characteristics of your business that a buyer would pay a premium for, such as a highly competent management team or a well-developed brand name?
Conversely, what are the areas of your business that a perspective buyer would view as a detriment, such as customer concentration risk or the business's reliance on you as the owner?
An Exit Plan can help you, the owner, understand the business from the buyer's perspective and will identify the gaps in your business that will need to be filled.
How do I get paid when I sell?
The preferable way to get paid at the Closing Table is in cash. A Buyer assembles that cash from various sources: the Buyer's own resources, investors, a commercial loan from a bank, or other types of loans such as mezzanine financing.
Often times, there are seller notes, where the seller loans the buyer money to buy the business.
These seller notes can be thought of as bridging the gap between what the buyer and seller think the business is worth and what the lender thinks the business is worth and is willing to loan against.
Seller notes are typically secured, just like a home mortgage, but they are always subordinate to the bank loans.
There are occasionally contingent payments made to the seller depending on events after the close. For instance, perhaps an earn-out is paid if the revenues in the first year after the close are equal to or greater than the revenues in the year before the close.
How you get paid is every bit as important as how much you get paid, and your Abraxas Advisor will work with you to get a deal in place that satisfies you on both dimensions.
Why do I need an exit strategy?
Every business owner needs an exit strategy. It's reality - at some point you must leave your business, either through retirement, financial crisis, disability, or death.
Having a well-thought out Exit Plan and then diligently implementing that plan gives you options about how to best transition your business to meet your financial and your personal goals when the time is right.
Who do I need to have on my exit planning team?
To successfully exit a business, you will need a team. The core of your exit team is you. You will then need a professional who can help you understand how to best position your business for an exit and you will need an advisor who can best position yourself and your family financially.
In addition to this core group, other experts may be needed, depending on your particular circumstances. For instance, an employment attorney may be needed to implement key employee agreements. Or, a CPA may be required to review the financial records to identify areas that needs to be better managed from an accounting perspective.
Naturally, each business is unique and will have different needs throughout this complex process. At Abraxas, our role is to coordinate the activities of these advisors to assure that the team is working to achieve your particular objectives.
What is the difference in Succession Planning and Exit Strategy?
A succession plan is a form of an exit strategy where your exit strategy is built around people already identified, typically your management team or your children.
The goal of a succession plan is to position your key managers and/or children to be successful after your transition out of the company. With planning, all players are best positioned for an effective transition.
