Considering an Exit? Close the Value Gap Now

Approximately 44 million people in the U.S. are age 65 or older. This means a whole generation of business owners will be retiring in the coming years — and their businesses are likely their most valuable assets.

Many owners don’t know what their businesses are worth or whether the value will be enough to fund their retirement. To maximize proceeds, owners need an exit plan that defines both their personal and business objectives related to selling the business, as well as identifying the tactics to achieve them.

An exit plan can also help owners close the gap between the company’s current value and the desired value at the time of exit. These tactics might include a combination of changes in revenues, costs, capital and risks which are interrelated and must be considered together.

Building value generally means increasing “expected benefits” such as revenues and decreasing risk — and the two must be balanced. For example, expanding a product line may add revenues, but it may also result in unforeseen costs or require significant additional capital. Developing a deeper management team may increase costs but decrease risk, while reducing the supplier base may decrease costs but increase risk.

Similarly, expanding the customer base may increase income and decrease risk, but could also bump up sales costs. In this case, a company may consider terminating their relationship with less-profitable customers to free up capital to pursue opportunities with more upside potential. In all of these cases, the pluses and minuses must be weighed to determine whether action should be taken.

Building value may take significant time. The sooner business owners begin the exit planning process, the more time they will have to close the value gap and achieve a successful exit.

Our valuation professionals know how to create value in businesses. Contact us for help with your next steps.

About the Authors

Mindy S. Marsden
Mindy S. Marsden
CFE
Senior Manager, Valuation/Transaction Advisory Services
Steve C. Swann
Steve C. Swann
CPA/ABV, CFE
Partner, Transaction Advisory Services

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