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Your Guide To Building Business Value And Closing The Gap Through Exit Planning

If you've ever considered exit planning, you must build strategies that cover where and how to start, what to analyze and review for your business, and how to plan toward transition. The first step in business succession is building the most value you can for your business, a time to consider all aspects of your business and determine where opportunities of value lie.

What Is Business Value, And How Do You Calculate It?

Business value is considered and measured as the well-being and health of a business. It sums up all business aspects directly affecting the valuation, including drawbacks hindering the company's progress.

Calculating Business Value

Business Value = total sum of tangible (monetary assets, stockholder equity, fixtures, and utility) and intangible assets (brand, recognition, goodwill, public benefit, and trademarks) - liabilities (debts, commercial mortgage, capita equipment bank loans).

Before we get into exit planning, let's take a step back and understand some basics.

What Is A Value Gap?

You can consider the difference between the current value of a business and the potential value. Understanding a value gap allows for successful exiting planning by building value and meeting your desired goal.

What Is Exit Planning?

As a process that results in building and implementing a strategy, it allows you to exit your business on your own terms and conditions. Exit planning establishes a roadmap that includes business value creation targets, the process that will help achieve financial gains and limit losses, how you intend to exit, and all steps that need to take place to do so successfully. Many small businesses like yours fail to plan for an exit, resulting in missed value opportunities and non-optimal exits.

How Does Exit Planning Work When Building Business Value?

Exit planning works as a contingency strategy to prepare your business for sale or transition to new management. Still, it also comes in handy when unexpected changes in the market occur. Examples are litigation, divorce, estate planning, retirement, and even catastrophic events.

As you can see, your business value depends heavily on exit planning.

Achieving lasting, transferable value in your business depends on how efficiently you close the Value Gap. You must follow steps and set them as a framework for building sustainable value.

Building Business Value In 5 Steps

Okay, so let's make this simple for you, when you began business, you started with a business plan, but what about an exit plan? Now you've gained a different perspective.

To ensure a successful exit plan, there are steps every business owner should follow. The beginning step in this process is to identify objectives. Business and personal financial resources must align with goals to create a comprehensive plan.

Step 1 - Pinpoint Your Objectives: When, Who, and How Much

Defining and measuring issues supports a baseline value for your business. By implementing a financial needs analysis and establishing value creation goals, you determine what needs to happen to exit successfully.

Your exit plan should consider three objectives:
  • Timing To Sell/Exit? When you sell or exit will often change, mostly due to unanticipated events. For instance, the most recent global pandemic and economic recession can change the timing of selling your business.

  • Who You Sell or Transition To? Common options are family members, insiders like your management team, strategic buyers, or even competitors. They are the better choice to continue running and managing your business. Pro-Tip: When choosing the entity to sell to, align your objectives with those of the potential buyer.

  • How Much To Sell Your Business For? Knowing how much to sell your business will only come easily if you know how much it's worth. You can evaluate your company in many ways, such as using a multiple of EBITDA, seller discretionary expenses, or based on cash flow.

Step 2 - Evaluate And Plan: Now, what's next? It's time to outline state requirements before exit. This is the core of value creation, but can require more tactical tasks designed to decrease risk.

Step 3 - Execute The Plan: Here, you'll put your plan into play. Implement the planned value creation strategy to close the business value gap to prepare the future owner for their exit planning.
Insight: This step may last between 12-24 months.

Step 4 - Re-Assess Objectives And Progress: You're almost there. In this step, you'll assess performance based on your progress review on what was achieved and objectives remaining aligned. Adversity happens, and external factors can get in the way of proper execution. Therefore this step proves its value in helping you know where you stand and if you need to modify your course,

Step 5 - Finalize Exit/Sell: The finish line! You are now ready to exit on your own terms, successfully transitioning your business through a well-built and executed exit planning process.

Getting Started

Get the support you need to assess the value of your business properly. No company goes without having to tackle weaknesses of some sort, and identifying them becomes a kick-off point to tread way into finding a solution to improve them. Once you convert opportunities into strengths for your business, you will see an increase in business value.

There's no hiding that exit planning is a tedious process, but by creating powerful exit planning, the sky's the limit to what you can achieve. We help you effectively lead your exit planning strategy by significantly simplifying the process and making it efficient and cost-effective. Start a free business valuation session with one of our advisers.

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