(In other words, I’m not ready to consider a sale today – but what should I be doing to build value, make my company more sellable, and reduce taxes?)
Why Plan Now?
At Chinook, we meet business owners every day who are not ready to consider a sale in the short term. There are many reasons for this:
- Perhaps the financial readiness is off-target in meeting the owner’s goals – revenues are flat or down, or profitability has weakened.
- Oftentimes, the owner is not personally ready but they know that over the next few years they will need to consider a sale and prepare the business beforehand.
Despite these reasons, it is never too early to begin planning given the following factors:
- Peace of mind for owner and family members, especially for family trust and estate planning
- Set up retirement planning and your “number” with your wealth planner
- Key employees have some understanding, and you can set up formal retention plans
- Strategizing for tax advantages like QSBS with your tax planner
- “Life happens” – even if an owner is several years from a transition, an unexpected medical or family event could derail the timeline. Without a plan, unexpected events cause headache and more expense
A Timeline That Shows Why Early Planning Matters
Preparing and executing the sale of a business takes time. For example, if an owner wants to walk away in three years, the timeline below demonstrates why it makes sense to start now:
- Year 1– Planning Phase
- Learn about the Chinook Annual Strategic Assessment Process and develop a plan to implement strategies that prepare the company for the M&A sale process
- Year 2 – Go To Market Phase
- Execute the M&A sale process and get the deal closed
- Year 3 – Post Sale Phase
- Implement a transition plan with customers, vendors and employees
What Is the Chinook Strategic Assessment Process?
Let’s start with what we call “The Three Legs of the Stool” – you need all three legs or the stool will fall over.
Leg 1 – Is my company ready? – Sample preparation questions…
- Can I and my leadership team articulate a 3-5 year vision for the business and possible areas for growth?
- Is the business too dependent on me or do I need to work on delegation and some potential key hires?
- Are my financial statements ready for third party financial due diligence?
- Should I consider completing a Quality of Earnings Report in advance of a potential sale?
- Would I be comfortable putting my leadership team in front of potential buyers or do they need some coaching?
- Should I consider some sort of retention agreement with key employees to create alignment and incentivize them?
- Should I consider hiring a business coach or implementing a business operating system?
Leg 2 – Is the market ready? – More sample questions…
- What are the M&A trends in my industry?
- What are the primary value drivers in my industry?
- Who are the most active buyers and why?
- Who would be the most likely buyers for my business?
Leg 3 – Am I ready? – Even more sample questions…
- Have I formed my transition team yet? We call this “The Core Four Firms”
- Wealth advisory firm that focuses on advising business owners before, during, and after a sale
- CPA firm with transaction advisory experience
- Law firm with both M&A and trust & estate attorneys
- Investment banking firm focused on planning and executing an M&A process that meets your goals
- Do I know my number? Have I completed a business valuation including a proceeds analysis net of debt, taxes and transaction fees?
- Have I hired a wealth advisor and completed a comprehensive personal financial plan including a budget for life post sale?
- Am I working with my wealth advisor, CPA and trust & estate planning attorney to reduce taxes in a potential transaction?
The Chinook Strategic Assessment Process
This leads up to our process as follows:
- Step 1– Assessment
- Where is the business today? – An exercise using an expanded version of the above questions to arrive at a starting point and create an action plan
- Step 2– Preparation and Action Plan Execution
- Execute the action plan with assistance from your Core Four Firms
- Step 3 – Full Sell-side M&A Process
- Execute the M&A sale process once the company, market, and business owner are all ready
Final Thoughts: The Best Time to Start Is Now
Even if you know that now is not the right time to consider a sale, it is never too early to get ready for a potential future transaction. Forming your team and executing an action plan will increase the value of your business, improve its salability, and maximize your net proceeds. When is the right time to start? Now.
