Selling a business is a significant milestone, both personally and financially — but it also takes a deliberate plan to maximize the sale proceeds and to prepare personally for the business exit. The more time business owners have in crafting and executing their business exit plans, the higher the probability they will achieve their desired outcomes. Understanding the different time factors and how to plan accordingly is crucial to a successful business exit.
What Are the More Common Types of Business Exit Paths?
Planning for a business exit is key to getting the most value and liquidity for the business. There are many different exit paths to consider:
- Selling to an employee
- Selling to a family member
- Selling to a third party
- Selling to an ESOP
Working with a team of financial advisors can help determine which of these options is best and how to best position it for sale based on when the owner plans to exit.
What Can a Business Exit Team Do for an Owner?
A business exit team is a strategic benefit for many business owners. This team of advisors can act like the architects of a business plan, meaning they bring fresh eyes to identify strengths and weaknesses and help optimize and maximize a business’s full potential.
When an owner meets with a business exit team, they will first discuss goals for the business and the owner’s personal finances. This can include how much income the owner needs for retirement and considering the impacts of selling the business on meeting those financial goals. Having an end retirement savings goal with a team of trusted advisors helps define a destination, so owners can make the goals a reality.
What to Do 10 Years ahead of a Sale?
According to the “2023 National State of Owner Readiness Report” conducted by the Exit Planning Institute,, 75% of business owners would like to exit their businesses within the next 10 years. Understanding the end buyer is a crucial first step to maximizing the value of a business. Next is to aim to understand the true value of the business. Planning for a financial future during retirement years is the most important consideration in understanding how and when owners could sell their business.
Once the business owners have answered the first few questions about the business exit strategy, they will need to review the company financials. The strength and health of the business will greatly determine the value at which it can be sold.
A 10-year time horizon provides owners a chance to strengthen any financial metrics or parts of the business that need attention, as well as plan how to minimize taxes at the time of business exit. The beauty of a long-time horizon and working with a full relationship team is that owners can access liquidity needed to continue growing the business before the intended sale — further maximizing the value ahead of an exit.
What to Do Five Years ahead of a Sale?
Many of the questions above can still apply to the business if the owners are five years away from a sale. This is an important time to establish the leadership team for the next generation. A team with tenure who will stay with the business after it’s sold can be more attractive to a potential buyer than a team that is brand new and doesn’t fully understand the business.
Five years ahead of a sale is also a crucial time to ensure financials are solid and that a growth plan is in place. This is when owners can rely on a forecast, to know the business is strong going into a sale, as well as whether a sale would help meet anticipated retirement goals.
What to Do Three Years ahead of a Sale?
Three years ahead of a sale is mission-critical time. This is most likely the minimum amount of time required to put forth a solid plan to optimize the value of a business and after-tax proceeds. With a three-year-time horizon, owners can put quarterly or monthly goals in place to strengthen or grow the business to ensure they are efficiently positioned to sell.
Ultimately, it is important to work with a team of trusted advisors who can support owners through the different life cycles and time horizons for the sale of the business. With proactive planning at each phase, putting the business first and assembling the right collaborative team can help achieve both business and individual financial goals.
Bryan Esarco, CPA, MST, CFE, CVA, CEPA is the vice president of Business Planning Solutions at UMB Bank. He is an experienced strategic advisor for Business Value Growth and Transition/Exit Planning with more than 25 years in public accounting and academic instruction.
Esarco helps business owners prepare for sale by implementing an executive leadership business operating system to help generate predictable profits, cash flow, sustainable growth and transferable value. He also provides expertise and important insight into estate and trust taxation and the business transaction structure for inside sales, third-party sales, mergers or acquisitions.
Esarco has a Bachelor of Arts in accounting from Cardinal Stritch University in Milwaukee, Wisconsin, and a master’s in taxation from the University of Wisconsin-Milwaukee.
