Business owners: Prepare an exit plan

Heritage Capital Group CEO Don Wiggins says even owners who don’t plan to sell should get ready for the possibility.


  • By Mark Basch
  • | 5:00 a.m. October 4, 2021
  • | 5 Free Articles Remaining!
Don Wiggins, CEO of Jacksonville-based business advisory firm Heritage Capital Group.
Don Wiggins, CEO of Jacksonville-based business advisory firm Heritage Capital Group.
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If you are a business owner, you may or may not have selling it on your mind.

Even if you don’t intend to sell, you will be better off if you prepare for the possibility, said Don Wiggins, CEO of Jacksonville-based business advisory firm Heritage Capital Group.

“Go through and do a formal exit plan,” Wiggins said in a Sept. 30 webinar about selling a company.

“It doesn’t matter if you’re going to sell or not,” he said. 

“All of the things that give an outside buyer value give you value.”

The webinar title was “Thorny Issues In Selling A Company: Saving Yourself Headaches and Heartaches, and Getting the Best Result in an Uncertain Environment.”

One key part of the preparation is determining any issue that might appear to a potential buyer during due diligence. It is better to acknowledge issues upfront than having a surprise the buyer finds when examining the business.

“Things are going to come out,” Wiggins said. “Buyers are extremely thorough.”

It’s not just business operation issues that could derail a deal. Health issues of the business owner or another key employee should be disclosed.

“Buyers are going to be very interested in this,” Wiggins said. 

“They want the seller to stay at least for a transition period of time.”

A business also may need noncompete agreements with key employees expected to stay with the company after a sale.

“I can tell you I’ve heard business owners say that person has been with me for 30 years, totally loyal,” Wiggins said.

But in a “significant number of cases,” he’s seen employees cash in on a sale and then leave.

“When there’s money in the water, everything changes,” he said.

Other issues that could concern potential buyers include outstanding litigation and other unresolved legal matters.

Business owners who do want to sell should keep their options open and talk to several potential buyers, not just one, Wiggins said.

“It’s a major mistake. You want to create a competition,” he said.

However, the buyer who offers the highest price might not be the best option. Sometimes a buyer can make an attractive offer but cannot get financing to pay that price.

“Make sure the buyer has the ability to close the deal,” Wiggins said. 

“You really want to choose the buyer carefully.”

Another wrinkle in selling a business these days is the impact of the COVID-19 pandemic on the company.

“Our experience has been the second wave has been worse than the first” for many businesses, as supply chain disruptions affect operations, Wiggins said.

Depending on the business, the pandemic could be affecting sales positively or negatively. Instead of focusing on current trends, a buyer will want to know what the trends will be after the pandemic ends.

“In every transaction, the issue comes up,” Wiggins said.

 “It’s just something you have to handle in a transaction.”

Other issues beyond a company’s control will continue to impact business, such as changes in tax law or other geopolitical issues.

That’s why it is important to prepare for a possible sale well in advance, so you don’t have to worry about suddenly shifting conditions, Wiggins said.

“When you decide to go to market, you want to do it as quickly as possible,” he said.

“The more you prepare, the shorter the transaction time is going to take.”

 

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