If you are an owner of a business, should you be thinking about and planning your exit? The answer is yes but most often owners do not plan for this activity until the decision is made to sell often for reasons that could not be controlled by the owner. The current impact of the pandemic is a good example of conditions of the economy that could not be foreseen or prevented.
It becomes critical for Business Owners to plan the inevitable decision to sell. Timing is everything and maximizing the value of the business (often measured as EBITDA) takes time and planning. Often the value of a business is determined by using the average EBITDA (Earnings Before Interest, Taxes, Depreciation) over the previous 3 to 5 years times a factor based on comparable businesses recently sold. For instance, if a business that averages $1M EBITDA per year for the last 5 years and the EBITDA Factor for similar businesses sold in that region is 4, the potential value of the business is $4M.
Activity required to improve EBITDA is all about improving efficiency within the business. The elimination of non-value activities and processes is critical to improve EBITDA. Most businesses get caught up in the day to day running of the business and fail to evaluate the potential. Through Strategic Planning the owner can develop plans to improve the overall performance of the business, improve margins and potentially create a competitive advantage to facilitate sales growth. Whether you are planning to sell in the next 3 to 5 years or not, the constant focus on elimination of waste is very important to the overall health of the business.
Lean practices are very helpful if implemented correctly to create a competitive advantage and will create additional value when the business is sold. Business Consultants can be helpful with implementing Lean practices. This will require an investment by the owner with a careful vetting of the consulting group to insure they are willing to work with the team, train the team and explain “WHY” change is needed. My experience with people is if they understand why change is needed they are willing and able to move with the needs of the business. Quite ofter the Culture of the business will shift when the team members are aligned with the Vision for the business. Also in my experience if the consultant is not willing to “Go To The Floor” and work elbow to elbow with the team the desired change and results are not sustainable.
When assessing the change to EBITDA Consulting Fees should be added back to EBITDA determine the run rate change as these costs are considered “One Off” fees for the desired change.
https://www.allbusiness.com/business-exit-strategy-business-plan-119617-1.html
