Gap Analysis for Exit Planning

Selling your business can be a complex and emotional process, especially when it comes to identifying if you will have enough money after taxes to maintain your lifestyle post-exit.

One of the areas in which we have helped guide business owners is to evaluate their situation to determine if there is a gap, and if so, how to bridge the gap to help them find their financial freedom.

The “gap” refers to the difference between the amount you want for your business plus any outside assets you may have and the amount a potential buyer is willing to pay you. If your exit amount post-tax plus your financial resources is not sufficient, you have some work to do and that is where having a team of professional advisors can prove invaluable.

Identifying the Gap

Before putting your business up for sale, it is important to have a realistic understanding of its value. This can be done by conducting a thorough business valuation, which considers factors such as revenue, profitability, assets, liabilities, and market trends. Once you have a clear understanding of your business’s value, you can set a realistic asking price. It is extremely important to engage a business valuation expert to help you with this.

Additionally, it is important to keep in mind that potential buyers may not be willing to pay your asking price. This can widen the potential gap even further. To identify the gap, you will need to do some research into comparable businesses that have recently sold in your industry. This will give you an idea of what buyers are currently willing to pay for businesses like yours.

Bridging the Gap Financially

Once you have identified the gap between your asking price and what buyers are willing to pay, plus your outside assets, you will need to find ways to bridge this gap financially. Here are some strategies to consider:

Negotiate the Price. The most obvious way to bridge the gap is to negotiate the price with the buyer. This may involve lowering your asking price or finding ways to increase the perceived value of your business.

Consider earn-out agreements. An earn-out agreement is a type of financing arrangement that allows the seller to receive a portion of the sale price over time, based on the future performance of the business. This can be a good option if the buyer is hesitant to pay your full asking price upfront.

Explore seller financing. Another option is to offer seller financing, where the seller provides financing to the buyer to help them purchase the business. This can be a good option if the buyer is unable to secure financing from a traditional lender.

Retain some equity. If the buyer is unable or unwilling to pay your full asking price, you may be able to retain some equity in the business. This means that you would continue to own a portion of the business and share in its future profits.

Utilize a business consultant or coach. You may need to delay your exit and work with a consultant to help you build the value of your company to your target exit price. You may need to create a top-level management team and incentivize them to stay on post-exit, develop a scalable and repeatable sales process and to maximize transferable value work to eliminate the idiosyncratic risk.  Potential buyers love when the key relationships are not tied to the owner.

Seek professional advice. It’s important to seek professional advice from a Wealth Advisor who specializes in business exit planning. At Gold Family Wealth, we have developed a mastermind group of professional advisors ranging from valuation experts, M&A attorneys, Trust and Estate attorneys, CPA’s who specialize with business owners, Investment Bankers, Business Consultants and coaches.

We meet every other month and share ideas and review case studies.  Having this network is extremely helpful to ensure the business owners we serve get the correct advice and guidance from professional advisors who are top in their field. These professional advisors can help you navigate the complexities of selling a business and provide guidance on how to bridge the gap financially.

In conclusion, selling a business can be a complex process, especially when it comes to identifying the gap and bridging the gap financially. However, with careful planning and the right strategies in place, it is possible to achieve a successful exit that helps you find your financial freedom.

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