Every business owner will need to decide when and how to step out of the business at some point. Now more than ever, business owners understand the importance of succession or exit planning. A survey from the Exit Planning Institute
found that 68% of business owners have sought advice about this topic.
One popular option is a sale of the business.
Mike Cassata, the Business Owner Advisory Strategist at Rockland Trust, stresses two distinct and important factors that come into play in deciding when and how to transition a business: attractiveness and readiness.
Brand awareness, scalability and revenue growth are all factors that make a business attractive to acquirers. Readiness, on the other hand, is a measure of how prepared the business is for an ownership transition.
The first step in assessing attractiveness and readiness for transitioning is to identify the value of the business.
How Do You Determine Business Value?
Determining the value of your business is not a simple math equation. The intangible assets are important when attracting potential acquirers. Ensure you’re familiar with the four C’s of capital:
- Human Capital: Running a business is a team sport. A company with its eggs in one basket – depending entirely on its owner – will seem riskier to an acquirer and might lower the price they are willing to pay. The value of the business increases when an owner focuses on employee development and key employee retention plans.
- Customer Capital: How many customers does your business have and how easy will it be to retain them? A diversified and loyal customer base will increase the value of your business, as well as building customer relationships through the customer's perspective
- Structural Capital: Well documented know-how and institutional knowledge, including processes and operations, increase business value. Paired with a strong team, structural capital signals to acquirers how smooth of a transition to expect, which may impact how much they are willing to pay to acquire the business.
- Social Capital: Think of this as your company’s internal and external reputation. For example, businesses with a strong culture and brand are more valuable to acquirers than those without one or the other.
An external perspective can be helpful when assessing the value of your business and how ready it is to transition. Mike’s role at Rockland Trust is to help business owners prepare for ownership transitions, including an assessment of the current state of the business and steps that owners can take to improve attractiveness and readiness, so they are well-positioned for the next step when the time is right.
Would Anyone Even Be Interested in Acquiring My Business?
The short answer is yes; it is likely that an acquirer out there wants to invest in your business. Manufacturing, distribution, and HVAC are examples of attractive and popular businesses among potential acquirers, though owners may not realize that is the case.
Throughout his career, Mike has worked with many business owners who were skeptical that anyone would want to acquire their business. Many more think there are only two options: liquidate and shut down or sell to a competitor.
The reality is that there are many options for business succession. From passing the business to a family member to setting up an employee stock ownership program to transitioning to a private equity group, Mike wants business owners to know their options so they can make an informed decision that best suits their needs and values.
“I am concerned that economic conditions can cause business owners anxiety and push them to sell almost under duress,” he said. “I want to raise awareness that there is no need to rush, and
a team of advisors can help owners plan a thoughtful succession strategy.”
Exit Planning is Part of Business Strategy
Mike advises owners to start thinking about how to transition as part of their business strategy. “Exit or succession planning should not be a big project to do at the last minute. The more time you give yourself, the more you can do to build and harvest value from your business.”
An ideal runway for exit planning is 18 to 36 months ahead of time. This leaves plenty of time for assessment and strategy development, correcting any issues and ensuring you get top dollar for all the work you put into building a business.
What is the Next Step To Prepare my Business for Transition?
“As a business owner, you want your business to remain attractive and ready. Once the business is ready, you’ll always be ready whenever the timing is correct for you. Having the power of no on your side allows you to choose and get the maximum value possible,” Mike said.
The Exit Planning Institute found that though most owners sought transition advice in 2023, nearly
80% of owners do not have a formal transition team in place. You don’t need to undertake this process alone.
Start a conversation about transition planning with a Rockland Trust business banker, or reach out to Mike to plan the next steps for you and your business.
