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The Importance of Contingency Planning When Exiting a Business

The Importance of Contingency Planning When Exiting a Business
by Collective 54

Buyers are interested in acquiring businesses that are transferable with sustainable profits. A solid management team and successor are critical components of a transferable business but are not always present in closely held businesses. Developing a contingency plan and a strong management team to be sure your business can operate without you will protect you in the event that something happens to you, and it will definitely increase your company value if you decide to sell.

Revenue is not always the most important value driver. In fact, one of the biggest concerns a buyer usually has about a business is its dependence on the current owner. Not only does this cause a business to be unattractive to a buyer, but it also creates great risk for the current owner. How would that business continue to function and prosper without the owner? Too many times, an owner has the business relationships, processes, procedures, and technical know-how all under his or her control. In some extreme cases, you could actually say that the owner is the business. This is the direct opposite of what appeals to a buyer.

As a business owner, you’ve spent countless hours and innumerable resources structuring and negotiating deals, developing innovative products and services, and working to serve your customers — now it’s time for you to benefit by making your ownership transition your best and most successful deal yet.

Minimizing the risk potential in your business takes time, effort, and planning, which is why we recommend you begin the planning process at least three to five years prior to your desired transition date. By undertaking this process, you will know how to maximize the value of your business and when to sell (either internally or externally) so you can tap into the value, realize your gain, and get enough money to achieve your goals.

Collective 54 is the only national peer advisory network for owners of professional services firms, focused exclusively on growing, scaling and maximizing firm valuation. In fact, Collective 54 has the most exclusive access to the highest-caliber professional services business owners in the world. Collective 54 gives you access to truly independent, unbiased and expert advice on the most critical priorities facing a business owner, to help you successfully exit your firm.

Sources: TSIA, BTA, 2020