Follow Dallas Linkedin
Email Dallas Email
Financial
Mar 1, 2018

How Does Exit Planning Protect Business Value?

Sponsored Content provided by Dallas Romanowski - Managing Partner, Cornerstone Business Advisors

When you set about starting your business, you likely had big goals and expansive dreams about its success.

Whether success meant having an impact on your community, making as much money as possible or something else, you probably wanted your business to become the ideal firm in your market.

As you build your business toward the ideal, you concurrently build your business’ value, which is a key aspect of a successful exit plan.

Does this mean that hiccups, stalls or unforeseen failures in the growth of your business’ value will directly affect your business exit? While that can be true, proper planning helps mitigate those kinds of fluctuations.

Consider the situations of two owners, Wendell Heath and Aspen Taylor:

Wendell Heath and Aspen Taylor each founded construction companies as C corporations in the late 1980s, in similar but non-competing markets.

In the early 2000s, Wendell and Aspen each decided that they wanted to leave their businesses by 2010. They each had their businesses appraised for $5 million but wanted to increase their business’ value to $8 million.

Wendell began by investing heavily in equipment and hired a slew of employees to keep up with the high housing demand. He typically found himself working 60-hour weeks.

The only advisor he spoke to was his CPA, and he only spoke to her during tax season. Despite his CPA’s suggestions, he did not consider converting his corporation to an S corporation, saying that he’d do it later after he built his business’ value. He figured hard work and dirt under his nails got him this far, so it would also bring him to a successful retirement.

Aspen began by speaking to her CPA, alerting him of her desire to exit within eight to 10 years. Her CPA directed her to an exit planning advisor, who suggested that she begin installing a strong management team, complete with incentive programs and covenants not to compete.

Over five years, Aspen went from working 60-hour weeks to 30-hour weeks. Her exit planning advisor also connected her with a tax specialist - who helped minimize her taxes on income and convert her C corporation to an S corporation - and a business broker, who helped her buy two smaller competitors to broaden her market share. She hired a management coach to identify and train four key employees who could either buy or run the company when she was ready to exit.

In 2008, both companies were hit by the Great Recession.

Wendell’s cash flow fell dramatically. He was forced to lay off most of the people he had hired several years earlier. The equipment he’d invested in often sat unused. Although his business was valued at just $6 million, he took it to market because he was tired of working 60-hour weeks. The best offer he got was for $5.5 million, which resulted in a $2.25 million payout.

Aspen’s company felt pain during the recession, but her layoffs were minimal, thanks to the cash she had saved through strategic tax planning. The two companies she bought years earlier increased her business’ value to $15 million, and her strong management team made her company attractive to buyers despite the Great Recession. Her conversion to an S corporation lowered the taxes on her company’s sale. In 2010, she exited her business with $10 million post-tax.

Past success rarely predicts future performance. Much can happen between when you decide to exit your business and when you actually exit. If planning for and minimizing the hiccups, stalls and unforeseen failures in the growth of your business’ value is important to you, please contact us today.

© Copyright 2018 Business Enterprise Institute, Inc. All Rights Reserved

As a member of the Business Enterprise Institute (BEI), Cornerstone Business Advisors is an authorized distributor of BEI’s content and Exit Planning Tools.

The Cornerstone team includes former C-Level executives, successful entrepreneurs and advisers who offer unmatched experience in delivering advanced, custom-tailored, results-oriented solutions for business leaders. We developed the Performance Culture System™ to help clients implement best practices and drive high performance throughout their organization. For more information, visit www.launchgrowexit.com, call (910) 681-1420 or email [email protected].

Other Posts from Dallas Romanowski

Bizjournalblockad
Ico insights

INSIGHTS

SPONSORS' CONTENT
Tidewaterinvestmentco merrettemoore headshot

Where To Make Money In Private Company Investing: Potential. Growth. Predictability.

Merrette Moore - Tidewater Investment Company
Chris coudriet

Three Years Into The County’s Five-Year Strategic Plan

Chris Coudriet - New Hanover County Government
Dave sweyer 300 x 300

Looking To Purchase A Rental Investment Property? Here's How To Avoid Making A Bad Investment

Dave Sweyer - Sweyer Property Management

Trending News

Ash Aziz Restaurant Planned For Autumn Hall

Cece Nunn - Mar 1, 2021

For S. College Road Project, Construction Could Begin This Year

Cece Nunn - Mar 2, 2021

End Of Days Distillery To Add Commercial Kitchen

Jessica Maurer - Mar 2, 2021

TRU Colors Gears Up For Beer Production

Christina Haley O'Neal - Mar 3, 2021

Beach Bagels Launches New Menu With Added Features

Jessica Maurer - Mar 3, 2021

In The Current Issue

Info Junkie: Ray Pastore

Ray Pastore, associate professor and Esports program coordinator for the University of North Carolina Wilmington, shares his tech and info p...


Watercraft Handcrafted In Wilmington

Cape Fear Catamarans on U.S. 421 customizes, designs and builds aluminum boats....


During Pandemic, State Parks Fill Up

People, parks and a pandemic made a strong combination for North Carolina state parks last year, with a record number of visi­tors taking ad...

Book On Business

The 2021 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

Trying to Grow a Business?
2020 Health Care Heroes
2020 WilmingtonBiz 100