The exit planning process usually takes a long time. It should start well before most entrepreneurs expect, so they may achieve their personal and business financial goals when leaving their companies.
At Value Scout, we put the business value at the heart of the exit planning process and strive to help business owners exit their companies on their terms. Our 20 years of experience as exit planners and value advisors has taught us that there is always a gap between the current business value and the business owner’s expectations (exit goals). Therefore, our exit planning process includes value creation to meet the desired exit outcomes of entrepreneurs.
Exit planning is a complex process, but Value Scout’s approach and tools streamline and simplify it.
5 Stages of the Value Scout Exit Planning Process
The Value Scout exit planning process involves five stages:
- Gather information
- Business Transition
Exit Planning Stage 1: Gather Information
The first stage of our exit planning process entails a client intake sort of process during which we accomplish three things:
Define Baseline Value
The baseline value is the current value of the business and the starting point for the exit process. This figure is our first metric and the foundation of all following actions to reach the client’s exit goals. Therefore, it’s essential to accurately determine the baseline value after a thorough business valuation process, rather than relying on assumptions or gut feelings.
Financial Needs Analysis
We thoroughly analyze the business owner’s needs and wants to determine what will be necessary to sustain their current lifestyle post-exit and meet their other obligations and goals.
Again, we don’t rely on the gut number entrepreneurs usually throw at us as their exit target. Instead, we calculate this exit proceeds number after considering the client’s present and future personal financial situation, expenses, obligations, expectations, etc.
We articulate the client’s life goals, including charitable and legacy purposes, to understand how the exit should look and which path will be most suitable. This exercise helps us draft a targeted action plan and guides us towards the exit goals.
Exit Planning Stage 2: Analyze
Suppose, after completing the first phase of the exit planning process, we determine that we need to get to $25 million in enterprise value for the business owner to achieve exit goals. In the second phase of the exit planning process, we figure out if that figure is realistic, using three steps:
Reality checks help us know if reaching our determined exit value is feasible and viable and whether the business owner is determined to achieve it.
We speak with the entrepreneur or leadership about how the client wants the company to look five years ahead. This process also involves financial modeling.
Long Range Strategy
We develop a clear strategy that will help us close the gap between the company’s baseline value and the value needed for the client to exit the company on their terms.
Exit Planning Stage 3: Improve
So, we have performed reality checks, visualized the company-to-be, and devised a strategy. Now we make it happen by creating value. This stage involves four steps:
Value-based Annual Plan
We create a value-based annual plan by allocating the company’s limited resources wisely to primary objectives and initiatives that help create value.
Business Process Improvement
We implement and improve the business’ operational processes so that it can grow structurally and financially. Executing new and improved strategies increases value by improving cash flows, reducing owner’s involvement, increasing scalability, and enhancing growth.
We identify company-specific risks, develop a program to address them, and run initiatives to take them off the table and increase value.
We incorporate quality assurance measures to increase the likelihood of the desired outcome. This involves combining process and leadership elements to devise the plan that ensures success.
Exit Planning Stage 4: Re-assess
We come full circle at this stage. At this point, we check the results of our efforts and measure our progress to ensure that we’re still working toward the same objectives and whether the progress made is meeting our benchmarks for success.
This stage of the exit planning process involves three steps:
We check the results we have achieved so far and how they align with what we had planned. We identify the areas that either failed or did not meet expectations to help us ideate better value creation initiatives for the future.
Baseline Value Recalculation
We calculate a new baseline value, depending on how much our initial baseline value has moved after our value creation efforts.
Financial Needs Reassessment
We repeat the financial modeling process, verify the client’s goals, identify any changes in the industry that could impact our client’s business, and reassess the client’s financial needs and wants.
Many people miss this step. Failure to track progress and adjust strategy and effort where necessary often results in the exit taking much longer than initially planned. We review our progress at regular intervals and change the value as necessary to meet our goals on time.
Exit Planning Stage 5: Business Transition
Using our iterative exit planning process, the client finally arrives at the exit point: the business transition (external or internal). We follow three steps in this final stage of the Value Scout exit planning process:
Rules of the Game
We educate the business owner(s) or leadership team on what their exit transaction will look like and what they can expect and prepare them for negotiation. We teach them how the system works so they play the game effectively.
These “pre-diligence” measures justify the business value and showcase the company’s potential growth, profitability, and sustainability to interested buyers.
We start executing the deal; however, its timeline depends on the nature and the complexity of the transaction.
Get Your Successful Exit with Value Scout
At Value Scout, we mentor our clients at each stage of the exit planning process and ensure they achieve their desired exit goals, including when and how they want to exit. Our technologically driven and scientifically designed tools have a proven record of making the exit planning process effortless and accurate.
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