John Brown, president of Business Enterprise Institute, a firm that trains business advisors to craft successful exit strategies for their clients, spoke on Tuesday, June 3, at the Directions08 Conference about exit planning for owners of building companies. Brown, also an author of three books on exit planning, outlined a seven-step exit planning process for business owners, and identified the most important ingredients of a successful exit.
Every successful exit from a company, according to Brown, includes a written plan based on the owner's objectives, an experienced team of advisors who will design and implement the plan, cash flow and a quantified business value, a strong management team, and time. It is extremely important that at least one of the team helping to craft the exit strategy has significant experience in such planning.
Time also plays an important part in exit planning; it is better to start planning for your exit from the company as early as possible to ensure you meet personal and business financial goals.
Brown's seven steps of exit planning are:
1. Identify exit objectives—determine your priorities in leaving the company.
2. Quantify business and personal financial resources.
3. Maximize and protect business value.
4. Decide to transfer ownership to third parties or
5. Decide to transfer ownership to company insiders.
6. Ensure business continuity, whether the owner survives the transfer or not.
7. Consider personal wealth and estate planning.
Offering elaborate business transfer scenarios, Brown illustrated ways to maximize the success of passing on a company to third parties or to company insiders. If you are planning to transfer your business to an insider, Brown recommends reducing income tax payments by the buyer and the seller's capital gains taxes by determining that the owner/seller will receive the minimum value of the business rather than the maximum value.
Maximizing and protecting business value can be achieved by focusing on increasing cash flow, improving the sustainability of cash flows by improving operating systems, documenting sustainability of earnings, improving company performance, and paying down debt, Brown says. Also important is building a solid management team and, if applicable, grooming a successor.
Regarding third-party transfers of businesses, Brown offers some tips for custom builders on making their companies more attractive to potential purchasers: be able to show the company's future value; diversify capabilities and services; and engage in high-end construction, which is relatively recession-proof.
