Every business owner needs an exit strategy for their company, whether that’s to dissolve it, sell it to the highest bidder or cede ownership to a family member before retirement. But it takes time to prepare the company, especially when an outside buyer is coming in. Better preparation with time and attention means a higher valuation.

Right now, merger and acquisition activity is surging. According to Refinitiv Deals Intelligence, the number of transactions globally is at a four-year high, up from $2.3 trillion in 2017 to $4.4 trillion in 2021.

But to get the best value for the company, it’s important to prepare early on for the exit. It should be in view from day one of the business’ existence, while the actual exit process should begin at least three to five years before the owner’s target date.

In this episode of Promo Insiders, ASI Media Executive Editor Sara Lavenduski speaks with valuation expert Dave Bookbinder, managing director at B. Riley Financial, about creating an exit plan and how to get the most value from your business.

Podcast Chapters (Available Only on Desktop)
1:06 What is the exit phase?
2:30 How long it usually takes
5:45 Why people put off planning for it
8:08 Preparing for life’s uncertainties
9:18 What to consider if a child wants to purchase
10:40 Enlisting a team of advisers
15:30 What do buyers look for in a business?
21:08 Steps to take now

“The process starts with your intermediary, ideally an investment banker or business broker,” says Bookbinder. “They should put together an offering memorandum. It contains all of the documentation that a potential buyer is going to need to make an informed decision.”

But that documentation is only as valuable as the preparation the owner has put into making sure the company is managed well. If the business is in the owner’s head and too dependent on one person, that can hold up the valuation process. When it’s presented clearly, the intermediary can help the owner craft “the story” of the company for a potential buyer, says Bookbinder.

“The buyer is making an assessment on risk. The greater the risk, the lower the valuation you’re going to get.” Dave Bookbinder, B. Riley Financial

“What really matters most in valuation is what’s down the road,” he says. “It’s the net present value of the future benefits that that business is going to derive over the next five, 10, 30 years. At the end of the day, the buyer is making an assessment on risk. The greater the risk, the lower the valuation you’re going to get.”

Watch the Facebook Live Archive