The 5-part Value Scout exit planning framework, otherwise known as the Exit Planning 2.0 framework, puts the value at the heart of the exit planning process and helps advisors solve the primary problem most owners face in achieving a successful transition: their business simply isn’t worth enough. Read this article for a high-level overview of the Exit Planning 2.0 Framework, or access this webinar for a summary of all five phases.

The Five Phases of the Exit Planning 2.0 Framework are:

1. Define and measure the problem
2. Analyze
3. Improve
4. Re-assess
5. Exit

First 4 Phases Recap

Step 1, the Define and Measure Phase, is where we determine the baseline value of the business.

In Step 2, the Analyze Phase, we conduct a few reality checks with the business owner, and we envision how their company should look in the next few years.

In Step 3, the Improve Phase, we developed a value-based plan that focused on allocating resources to drive value creation activities.

Step 4, the Re-Assess Phase, occurs 9 to 12 months after the Improve Phase. This is when we check our inputs, see if we’re ready to exit, and, if not, make sure that we are still working towards the same objectives or if we need to make some changes.

Eventually, Phase 4 leads to a transition.

Phase 5: Transition

Ultimately, the Exit Planning 2.0 Framework is an iterative, closed-loop process. It enables you to lead a business owner through establishing value, articulating goals, implementing value creation activities, and gauging progress as often as necessary to achieve the desired result. At some point, you will reach the desired future state: the exit. You leave the loop and take the business through transition (either internally or externally) when that happens.

Transferring any business is challenging. It is essential for the transferring agent to plan for it well in advance (hence the Exit Planning 2.0 Framework) and to work the sequence of steps intelligently. The transferring agent will thus maximize their chances to find the ideal buyer who will ensure the business continues. Handing a business to new management can be a real lever for the business’ growth and a source of value for your client’s assets. Encourage your clients to think about exit planning as early as possible and get them ready to take their businesses step by step toward that goal. You will thus optimize the client’s chances of finding the right buyer and selling the business under favorable terms.

As we approach this transaction, we want to do the following:

• Understand the rules of the game
• Establish pre-flight checks
• Execute the transition.

1. Understand the Rules of the Game

To achieve a successful sale, you need to understand how the whole system works to play the game. Accordingly, the founder’s specific needs should be precise before beginning the search for investors. This increases the chance for success. First, collect as much information as possible about the company. Then identify the business’ strengths and weaknesses. This essential exercise allows the business owner to decide when to sell and develop persuasive arguments during buyer negotiations.

2. Establish Pre-Flight Checks

Those who have conducted exit planning over the last 25 years easily understand this concept. It involves necessary exercises, such as minimizing risk, a complete contract review, working through a punch list, and taking things off the table. During this crucial stage, the team should include lawyers and accountants who will:

• Reduce the time you devote to this operation, as this step is all about defending value, not creating it;
• Add a step in the negotiation process, very useful, for example, to keep certain confidential information;
• Reassure the investor that this structured group is experienced in this type of transaction.

The whole point of this step is meant to defend the value of your business, which we are least interested in. Exit Planning 2.0 focuses on creating value. The primary objective of preparing this plan, with supporting figures, is to justify the future of the client’s business to the buyer. It shows that the company is in good working order.

3. Execute the Transition

Execution of the deal requires approximately 12 months of effort. The buyer generally sets the date of signature since they will only be ready once the acquisition audit is complete, financing has been granted in writing, and the legal structure is created.

The signing day involves forms, contracts, and as many copies as signatories. The time required for this varies according to the nature of the operation.

See Value Scout in Action

Advisors leverage Value Scout to identify the present value of their client’s businesses, articulate their desired future values, and model and implement the plans that will help them get there. Schedule a demo to learn more.