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How banks add value to exit planning

Most business owners have never sold a business, so when it comes time to sell, the succession or exit planning process can represent unfamiliar territory. Fortunately, a knowledgeable banker can serve as an objective sounding board, guiding the process to help you meet your goals while also preparing you to be in a comfortable position in your next venture.

Guiding the process and more

Developing a succession plan typically starts with establishing clear goals. A banker can talk through your goals with you and help you refine them based on your priorities, so you can prepare for retirement or the next venture and leave your business the way you want it. For owners preparing for retirement, your livelihood is probably tied to your business, and selling the business will fund your retirement. This will determine your future cash flow, which is obviously crucial. But there are other priorities to consider as well, like your company legacy or preserving the business culture you worked so hard to establish.

Clearly defined goals and priorities will serve as the foundation of your succession plan. They will act as touchstones as the process moves forward through the appropriate sales avenue, whether it’s family, a management team, a strategic or financial buyer.

A business banker can discuss the merits of having you talk with an investment banker, assuming any number of factors that dictate the need for that specific type of financial institution. The banker can also suggest specific, qualified investment bankers to consider. By the same token, your banker can point you toward the right tax, legal and other experts who can offer their opinions and advice as it relates to your established goals. And while a bank doesn’t offer these services and won’t offer advice outside its area of expertise, your banker can provide insight into the various legal and tax considerations you should be thinking about for the overall success of your plan.

Setting and developing clear expectations

As you build your succession plan, a banker can guide the process based on your timeline, which can take three to five years depending on your situation.

Your operating model, for example, will affect how quickly you can sell. A growth company model positions an owner to sell more quickly by demonstrating it can rapidly increase revenues. Conversely, a lifestyle company model grows revenues and earnings slowly, which doesn’t lend as well to quickly selling a business. Other factors, such as the state of your P&L, can also affect the preparation you’ll need to do in order to sell within the established time frame. As a sounding board, a banker can even help keep you grounded and manage your own expectations.

Getting started

Most importantly, you can help yourself by planning ahead – thinking about your exit a few years out. Developing a succession plan is the best way to ensure that you achieve the retirement or post-ownership situation you want, while leaving the business the way you foresee it. Involve a knowledgeable bank as you begin your process – it will steer you toward the right path based on your goals.

If you are interested in more information on succession planning and other helpful topics, sign up for our business series.

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