A smooth business transition often depends on the preparation that happens well before any sale or ownership change takes place.
In this video, we cover the key areas business owners should evaluate to improve readiness, strengthen operations, and avoid common issues that can complicate a future transition.
Transcript
[0:00 – 0:27] Mystery Speakeasy
Mystery speakeasy in his office. It’s fully stocked bar, totally stocked, and all these really classy finishes. Some really cool nostalgic photos. It’s just the most cusotm and really, really amazing rooms you’ll ever see, or in this case, never see.
[0:27 – 1:30] Why Most Exits Go Wrong
Hi, and welcome back to the Exchange. I’m Adam Brooks with ABLE Financial Group. Here at the Exchange, we talk about the financial topics that matter most to you. Business exit readiness isn’t something you figure out the week you decide to sell. It’s a process. In this brief video today, I’m going to share what that process actually looks like.
Why most exits go wrong. Here’s what typically happens: a buyer shows up or a partner makes an offer or a health situation forces the conversation and suddenly the owner is negotiating from a reactive position instead of a prepared one. Meaning the books aren’t clean. There’s no formal valuation. Key employees aren’t locked in. The tax implications haven’t been mapped out.
And what looked like a strong business on the surface gets discounted at the table because the preparation wasn’t there to back it up. Whether you own a law firm, an HVAC company, an accounting practice, or a plumbing operation, while each business is different, there are common principles that often apply, and they all require lead time.
[1:30 – 1:35] Business Exit Readiness Checklist
Business exit readiness checklist.
[1:35 – 1:56] Know Your Number
So, what does a prepared exit actually look like? Here’s the checklist. Number one, know your number. What does your business need to sell for in order to fund the retirement you want? That number drives every other decision. If you don’t know it. you’re negotiating blind.
[1:56 – 2:06] Get a Formal Valuation
Number two, get a formal valuation. This tells you where you stand today and what needs to improve to close the gap between current value and your target number.
[2:06 – 2:25] Clean Up Your Financials
Number three, clean up your financials. Buyers and their advisors usually examine your books closely and look for inconsistent records, personal expenses running through the business, or undocumented revenue. Those mistakes either kill the deal or reduce the offer. Three to five years of clean, well-organized financials is the standard.
[2:25 – 2:45]Reduce Owner Dependency
Number four, reduce owner dependency. If the business can’t function without you, buyers see risk and usually price their offer accordingly. To avoid this, document your processes, develop your team, and demonstrate that the operation runs on systems, not just on you.
[2:45 – 3:00] Lock In Key Employees
Number five, lock in key employees. If your top people walk when you do, the buyer isn’t getting what they think they’re paying for. Lock in retention agreements, equity arrangements, or structure incentives to keep critical talent in place through and after the transition.
[3:00 – 3:25] Map Your Tax Exposure
Number six, map your tax exposure. Whether the structure of your exit is an asset sale, a stock sale, an installment agreement, or an ESOP, they all have massive tax implications. Without a strategy built well in advance, without advanced planning, tax obligations may reduce net proceeds more than anticipated.
[3:25 – 3:44] Have a Plan for What Comes Next
Number seven, have a plan for what comes next. This one gets overlooks constantly. Many owners exit and immediately feel unmoored because of lack of structure, lack of purpose, and a lump sum they’re not sure how to manage. Knowing what your post-exit life looks like financially and personally is part of the preparation, not an afterthought.
[3:44 – 3:57] What to Do Right Now
So, what to do right now? If you’re within 10 years of an exit, or even if you’re not sure when it’ll happen, early preparation is often beneficial. Begin by sitting down with a financial adviser who understands business transition.
[3:57 – 4:12] Learn More About ABLE Financial Group
Interested in learning more about the ABLE Financial Group team and the ways we can help you? Call 480-258-6104 or email adam@ablefinanciallgroup.com today.
Thanks for joining me at the Exchange where we have conversations about the financial topics that matter most to you. Until next time.
