Have you thought of your Exit Strategy?

If you’re a business owner, you’ve most likely asked yourself this question, HOW DO I GET OUT OF THIS BUSINESS? The buzz phrase is “Exit Strategy” – and you have one—whether or not you have a plan in place. 

Your financial planner says you should have an exit strategy; your lawyer says you should have an exit strategy; your spouse says you should have an exit strategy. They may not say it in just that way. The financial planner says you need to diversity your assets; your lawyer says you need to spread your risks; and your spouse asks, “When are we going to spend more time together?”

In planning your exit strategy, you will have to look at many areas of the business and your personal life.

Estate planning Retirement plans Financial requirements Mergers / acquisitions / sale Heirs

I understand this can be overwhelming. Here is where I come into place. For a personal consultation regarding your Exit Strategy please call us at (408) 436-1900 or visit our web page where Exit Strategy Webinars are taped to educate potential sellers.

I look forward to hearing from you! 

Best of luck,
Joan Young

 Joan Young         jyoung@sunbeltbayarea.net  (408) 436-1900    www.sunbeltbayarea.net

How to Run Your Business Without You - Key to Increasing the Value of Your Business

Making sure your company can operate in your absence should be a basic element of business planning, but many entrepreneurs don't consider the possibility until it's too late. Planning for short-term and long-term replacements is key.

But how do you do that? Here's how to get started.

Get Your Job In Writing. It's easy to become mired in day-to-day tasks and lose track of how you're running your company. Knowing how you spend your time daily is key to ensuring your business can run without you. Ask the question, 'Who can jump in and do my whole job?' Ask yourself: What are the short-term and long-term aspects of the business you take care of? Write them down.

Prioritize. You'll find that certain responsibilities stand out among the many. Identify your priorities and start thinking about what would happen if you weren't around to do those tasks. This ensures that if you're pulled away from your job unexpectedly, the people who step in will know what to tackle first.

Create Processes. Writing out step-by-step instructions for your most important tasks will ensure those responsibilities are taken care of in your absence. Whether it's payroll or tracking sales and expenses--responsibilities that business owners tend to guard closely--making sure someone else knows how to handle those tasks is essential. For example, after Ashton's fall, he switched from manually signing every check himself to using an electronic signature.

Identify People Who Can Step In. Make a list of all your key contacts, starting with employees, vendors, clients, bankers, accountants, and lawyers, and think about who could take over each of your responsibilities

Step Back While You Can. It often takes an emergency for small business owners to realize they don't need their hands in every aspect of the business. Getting away from day-to-day chores has also allows you to spend more time on the company's long-term growth including raising money, expanding marketing efforts, and launching new services, etc.

Discover Your Marketing Perspectives

Do you believe that there is a right way and a wrong way to market your business? Is there a set of rules floating around somewhere that we must live by when we step into the role of marketing director for our company?

While some marketing guru’s have discovered that there are steps that are more, or less, effective than others, it’s important to evaluate your own belief system and be certain that your marketing represents YOU. But if your current marketing mindset is fearful and limiting, it's time to step into a new mindset and bring success to your door. There is a wealth of outstanding information out there for all of us, and you can combine this information with your own perspective to create an effective marketing model that resonates with you and represents your brand authentically.


Here are a few questions you can ask yourself to understand the value of what you offer, and to find the words to share your wonderful offerings with a larger audience.

• What is unique about my product or service?
• What is unique about ME and how does that enhance my product or service?
• How does it help others?
• How does it enhance the lives of my clients/customers?
• What are some of the things my clients have said about their experience with me or my company?
• Would my clients feel good about telling others about their experience?
• Is there something I can do to help those happy clients to easily spread the word of this experience?
• What can I do for my clients/customers to thank them for their business?
• Is there anything I can do to make my product of service more affordable for them on occasion?
• What are the most common words I hear others use to describe their experience of my product or service?
• How can I use those words to describe it to my future clients?
• If I don’t tell more people about my offerings what am I depriving them of?

If your marketing mindset is stopping you from growing your company, if you shudder when you hear the word, consider embracing a new mindset. Instead of marketing, use words and phrases like; sharing, spreading the word and helping others.

Enjoy growing your business; let us know how you’ve shaped a new perspective!

Tips for Business Owners on Retirement Planning

'I'll never retire' is a common refrain among ambitious entrepreneurs, but the fact is you are likely to decide to at some point. Here's a look at how to plan for that day.

Saving for retirement is tough. For one thing, there's no way to know exactly how much you'll need to save. All you can do is make your best guess based on your situation and goals.

Traditionally, financial planners and retirement calculators suggest you'll need 70 percent (or 80 percent or 100 percent) of your pre-retirement income to maintain your current lifestyle. This doesn't make much sense.

Say, for instance, you earn $80,000 a year but spend $70,000. If you based your retirement needs on your income (70 percent of $80,000 is $56,000), you'd fall short of supporting your current lifestyle. But if you earn $80,000 a year and spend only $35,000, basing your retirement goals on your income might lead you to save too much, meaning you could have used that money to enjoy life when you were younger.

68 percent Workers who report that they have saved for retirement

56 percent Workers who report that the total value of their savings and investments is less than $25,000

36 percent Workers who expect to retire after age 65

74 percent Workers who plan to work for pay in retirement

How Much Should You Save?
Instead of basing your retirement needs on your income, base them on your spending patterns. Your spending reflects your lifestyle; your income doesn't. But how much should you save?

According to the Employee Benefit Research Institute's 2010 Retirement Confidence Survey, 49 percent of retirees spend less in retirement than before (23 percent spend much less) and 37 percent spend about the same. Only13 percent spend more in retirement--and of those, 6 percent say their expenses are only "a little higher."

Sure, you will need a sizeable nest egg for retirement--especially if you plan to travel or play golf every day. But don't be snookered by the constant refrain that you need to save 70 percent of your pre-retirement income to retire well.

Retirement Calculators
There are hundreds of retirement calculators across the web, and each is a little different. No one calculator is necessarily better than any other, but these are especially handy:

• The T. Rowe Price calculator bases its results on your spending, not income.
• The Motley Fool has two useful calculators. One estimates your retirement expenses and the other lets you see if you're saving enough.
• Choose to Save's ballpark estimate tool can be used online or off. (But its numbers are based on income, not expenses.)
• FireCalc.com may seem overwhelming at first, but it'll give you an idea of how safe (or risky) your retirement plan is based on how it would have fared in every market condition since 1871.

Looking at the results from one calculator isn't very useful. But by comparing numbers from several, you'll get an idea of how much to save for the retirement you want. If you're lucky, you may even have enough to spend your mornings on the golf course.

Remember, as a business owner you own an asset, be sure to include the sale price of your business into your net worth and retirement plan. Have an exit strategy in place, and be sure to get a “Broker’s Opinion of Value” to ensure you have a grasp on the true value of your business when you are looking to retire and ready to sell.

How to Use EBITDA to Value Your Company

It's not the only number potential buyers look at, but EBITDA will give you a solid idea of how they'll start evaluating your business.

Looking to the future, can you envision a time when you might want to sell your business?

The best way to build a company is to build it as if you're going to sell it. It has to be built to last.

One place to start measuring your company's potential value in a sale is determining your EBITDA, or earnings before interest, taxes, depreciation, and amortization. It's certainly a mouthful, but the equation itself is really quite simple: subtract expenses from revenue (excluding interests and taxes) without depreciation and amortization (what you pay for tangible and intangible assets). The remaining number paints a basic picture of your profitability as well as your ability to pay off what it owes.

It's a quick way to assess the firm's ability to pay back interest or debts. EBITDA can be thought of as a "quasi-estimate" of your free cash flow, a more traditional and comprehensive assessment of a company's performance. You can get a more accurate reading of your free cash flow by subtracting out new capital expenditures for that year. Once you get this dollar amount, simply build upon the foundation to see how well you are doing.

Day 1: Understanding EBITDA: Add and Subtract Value

It's unlikely that you as the business owner would be fiddling around with your company's EBITDA. Still, before you sit down with the buyers or investors who will, it's important to understand what they'll be looking at.

Essentially, EBITDA on its own makes for a fairly futile statistic. There is, after all, a very good reason why you depreciate and amortize assets. To simply put those charges back in to earnings may give an unrealistic measure of your finances.

That's where the need for adjustments comes in. Since EBITDA is technically a non-GAAP figure, meaning it does not conform to generally accepted accounting principles, you can make these adjustments almost wherever you see fit. As just mentioned, you might need to devalue assets like old equipment within the overall number. Likewise, you also might have failed to collect some accounts receivables from clients. These result in a net-negative for your operating cash flow.

By the same token, you can also add both tangible assets (like equipment) and intangible assets (like your management team and employees) to the figure. It's typically through this addition process that you arrive at your company's value as a multiple of EBITDA. Let's say you pay yourself a $300,000 salary for a position that someone – like a buyer or competitor – could do for $150,000. That buyer would then add that extra $150,000 back into the value of your company once its absorbed. In this case, the number you arrive at is a form of adjusted EBITDA called "field" EBITDA, where you take into account subsidiaries and components of a company that can be absorbed for little to no cost. The term most often applies when selling the business to one in a similar field, in which case the management team, office space, and other business expenses may fall by the wayside during the takeover.

A Tale of Reported vs. Actual Income – Sellers Beware

Among the genre of small business owners, there is one individual whom I met that stands out from all the rest. He was the epitome of one obsessed with a need to minimize his reported taxable income. I was amazed at the lengths he went to, to distort his sales revenue and expenses on his financial statements. You name it, he did it: pocket cash sales and never enter them on the books, bloat reported expenses by recording personal purchases such as travel, meals, magazine and newspaper subscriptions, personal auto expenses, home repairs and maintenance and so forth as business expenses. He held back credit sales in November and December and didn’t book them until January; he stuffed his postage meter in December with enough postage to last him until August but reported the total purchase as an expense in December, and on and on. Moreover, he was quite proud of this accomplishment. He told me that he met with his CPA several times a year to “brain storm” new ways to minimize his reported income. The energy he put into this practice was enormous. He was truly consumed not with just a desire, but it seemed to me, a compelling need to avoid paying income taxes.

However, the enormous difference between his advertised earnings and what appeared on his financial statements and tax returns didn’t sit well with the buyers.

In addition to the negative affect that distorted financial performance reporting has on a business’s market value, such statements also become less useful—and in many cases useless—as a business planning and control tool. This is dangerous because there comes a point in a growing business where the absence of accurate financial reporting becomes the kiss of death.

There also comes a time in most growing businesses when the need arises to borrow money to finance new operating equipment, leasehold improvements, the purchase of real estate, inventory perhaps and so forth. Without good financial statements (and accompanying tax returns) that demonstrate a history of solid earnings, the ability to borrow the needed money becomes significantly more problematic.

And finally, one always runs the risk of being audited by one or more taxing authorities. If they should discover that you have been deceptive in reporting your company’s earnings, they can make you wish you hadn’t. In fact, I asked the business owner who I have told you about here if he was at all concerned about an audit. He assured me he was not. He said he was confident that he was much too clever to get caught by an auditor. I had my doubts about that. After all, he readily spilled the beans to both prospective buyers. One of those buyers could have been an under-cover I.R.S. agent. They really do stuff like that. Now there’s something else to think about.

Should You Develop a Business Exit Strategy?

Whenever you create something that's interesting and useful, you create something that's worth selling. And when you're thinking of selling something that's as vital to you as your business, it's best to have a well-developed plan firmly in place.

In business terminology, an ending for a business owner is called an "exit," while the planning of a defined ending is called an "exit strategy." Having an exit strategy tells others who have the occasion to view your business that you're in control of your business, that you're aware and goal focused, and that you have a plan for an organized and profitable ending.

Business owners who don't plan for ownership transition are often faced with the inability to receive enough money in an ownership change to fund a comfortable retirement. This doesn't happen because such owners failed to create value in their businesses; rather, it's because they failed to do the planning that would have allowed them to keep that value.

If you are just starting your business and intend to seek angel investors or venture capitalists, those investors will require that you have a viable exit strategy in place before they'll award you a dime. Business owners who are approaching retirement may want to sell their business to an outsider, a key employee, or to a co-shareholder or partner. Alternatively, they may want to transfer their interest intact to children or other family members. How can all of this be accomplished? You got it — with an exit strategy.

If you've been in business for years and are just now thinking of developing an exit strategy, don't despair. But do start your exit strategy today, keeping in mind that defining it is a process that requires careful thought. Rather than being something you'll finish in 10 minutes, this plan takes time, both now and in the future. Continue to revisit your exit strategy as your business grows.

All strategic exit plans should identify the following key topics:

• Current valuation of your business
• The factors that drive the value of your business
• Methods to increase your business value
• The potential future value of your business
• Your options for ownership change
• Likely tax implications of ownership change
• Tax-saving methods specific to your business
• Your likely proceeds from strategic ownership change

Set Up a Strategy

Let's say you accomplish the above imperatives and realize the current valuation of your business isn't what you thought it was, perhaps because you were off the mark when you originally determined the factors that drive your business's value. These two factors play into a third: your likely proceeds from an ownership change.

In cases like these, you'll need to amend your exit strategy or potential buyers won't be interested. Maybe expenses need to be reduced, better buying practices put into place, tighter controls placed on accounts receivable, improved service or focused sales and marketing initiatives need to be considered.

You get the picture. With a proper business valuation and some exit strategy planning, you can provide for a smooth transition and make the business more valuable and desirable. Alternatively, you can ensure that it will be turned over to family members on the most favorable terms to you, with the lowest tax consequences legally possible.

With your exit strategy in hand, work each day to make the decisions and moves that will position your business to reach your exit goal.

Don't Let the Buyer Run the Show!

I just closed a transaction a month ago in which we thought we had a great match. The buyer was quite confident, aggressive, and not demanding at all of the seller.

The parties agreed to four weeks of training. After two weeks, the buyer told the seller, "All is well. We can handle it from here." In effect, they were saying "Don't call us; we'll call you."

Meanwhile the seller is home receiving phone calls from the employees saying, "She thinks she knows everything. She isn't warm and open like you. I think I'm going to get my resume out there."

The moral of the story: Stick around and help make a smooth transition. Key employees need to feel valued, safe, and respected. Educate your buyer ahead of time about the personality of each key player so they can begin building rapport gradually. Most sellers will be carrying a note, so they definitely have a vested interest in the success of the new owner.