Grizzled veterans will pontificate about how successful enterprises are built from strength, character and luck. These elements, they say, together serve as the underpinning of business.But when company owners look forward to the exit in the distance—the sale towards which they have driven for decades—they should put those intangibles behind them. Planning is the only real mechanism for ensuring the most value and smoothest transition when a company changes hands.
Because luck and life can bury the business as quickly as they can build it.There are countless cases of death or disability forcing a sale at pennies on the dollar, or of families being torn apart by a sloppy succession. Should tragedy strike, emotional trauma does not have to be accompanied by financial disaster; business owners must brace for the unpredictable by beginning the process early.
To achieve intended results, an organization must develop a highly focused strategy well before any transitional event approaches. Indeed, a well-crafted plan should be formulated as far as three to five years before a sale. The process begins with getting the corporate house in order to guard against life’s sometimes unexpected interference.
A United Front
Historically, company leaders may look only to an investment banking firm when the time comes to sell. But putting a team of trusted experts in place to navigate the process and protect the owner’s interests is paramount to a successful exit: there are a number of moving parts that should be addressed by professionals in the CPA, wealth management, legal and consulting fields.
Financial Health
The books may look solid, with healthy margins and consistent growth. But how many liberties have been taken by ownership? Are family expenses, however minimal, being run through the company?Has anything slipped through the cracks?
A first step in crafting a plan is to have a qualified CPA examine the company’s financial status and make recommendations on how to make it as clean as possible. The CPA can also apply their perspective to issues like entity structure, tax and cash flow planning, and setting the company in a position of strength to survive a transition or sale.
“Choosing the entity structure can have a lot more to do with the exit strategy than it does with operations,” says Mike Tetrault, an owner at CPA and business consulting firm Wolf & Company P.C. in Boston. “Most companies’ operations can be managed to have similar tax results regardless of the structure. It’s when it comes time to sell that the flexibility of the right type of entity becomes most important.”
