Your life during Retirement is supposed to be the best years of your life, the time to reap the rewards of your labour. However, a shortfall from the proceeds of your business exit/sale can have a significant negative impact on your retirement plan and even force you to lower the standard of your retirement living, and in the worst case scenarios, it might mean that you cannot afford to retire.
Business Value Gap (BVP) and Business Exit/Sale Ready
Business Value Gap is the difference between your current business value and what you want to realise when you exit your business to achieve the expected standard of living for your retirement.
It is important for business owners to understand the value of your business, the size of the value gap, and how to improve the difference through business value improvement strategy and actions to be “Business Exit/Sale Ready”.
A Proven Methodology
In achieving your desired outcomes, a proven methodology and experience are critical. The recommended eight steps for a successful business exit are as follows:
- Understand your business exit aspiration/requirement;
- Determine the current business value using a “Proven Business Valuation Methodology”;
- Determine “Business Value Gap” (BVP);
- Formulate strategy and actions for business value improvement and business exit alternatives;
- Quantify potential future business value within a particular time frame;
- Implement business exit/ value improvement strategy and actions;
- Monitoring and measure improvement on a regular basis, and determine corrective actions to achieve the desired outcomes;
- Execute business exit actions, whether it is a family succession, sale, management buyout or some other alternatives including merger and acquisition.
The ability to demonstrate a profitable business, future profit and cash flow projections are critical elements in the determination of your business value. Thus, your business’s past three years financials, tax returns, Business Sustainability/Growth Strategy, as well as a three-year forecast will be most helpful to you as the seller and also will be crucial information to potential buyers.
Other pertinent information such as customers, competitors, operation, marketing/sales, human resources and suppliers will also be relevant to the purchaser, which should be incorporated in the “Business Sustainability/Growth Strategy” document as part of the strengths, weaknesses opportunities and threats analysis.
Achieving the desired outcomes
In achieving the desired outcomes, being “Business Exit/Sale Ready” is critical. While also ensuring business value maximisation has been carried out, and the relevant information is ready for buyer’s Due Diligence (detail investigation of every area of business), which is conducted by the purchaser’s Business Advisor or Accountant.