Editor’s note from AVID Esq. Group: Business owners are one half of what we call “Two Plans. One Legacy.” — a plan for the family and a plan for the company, built so the two talk to each other. This guest article from our referral partner Thomas Klewer of IndustryPro is one of the clearest explanations we’ve seen of why the company side of that plan has to start years before you sell. We’re glad to share it.
Guest article by Thomas Klewer, Director at IndustryPro.
Be Like Joe
Joe spent more than twenty years building his business.
His company generated approximately $20 million in annual revenue and $4 million in profits, and by almost every measure, it was successful.
Like most owners, Joe assumed that if he ever sold his business, buyers would primarily care about two things: revenue and profitability.
He was wrong.
What ultimately determined the value of his company wasn’t simply how much money it made – it was how it made that money.
After speaking with IndustryPro (M&A advisors) who understood how sophisticated buyers evaluate businesses in his industry, Joe learned that his company’s value could change dramatically based upon characteristics largely unrelated to its current financial performance. There are important variables that apply to every industry, such as customer concentration, management depth, and customer satisfaction but, critically, there are other industry-specific factors that drastically impact his company’s valuation.
The most surprising part? Joe didn’t need to double his revenue to dramatically increase the value of his business.
Instead, he spent the next two years making strategic changes that aligned his company with what buyers valued most in his industry. He shifted his revenue from primarily new construction services to repair and maintenance services. When he ultimately sold his company, he received nearly double what buyers would have paid before making those changes.
Joe’s greatest advantage wasn’t his business. It was his runway.
He learned what buyers valued while he still had time to do something about it.
Exit Planning Is a Process – Not an Event
Joe’s story isn’t unusual.
One of the biggest misconceptions business owners have is that exit planning begins when they’re ready to sell. In reality, that’s often when it’s too late.
The businesses that command the best outcomes are rarely built during the year they’re sold. They’re intentionally positioned years in advance.
Many of the decisions that have the greatest impact on business value require time – not months, but often years – to implement. There are general levers, like building a stronger leadership team, diversifying revenue streams, improving financial reporting, reducing customer concentration, developing succession plans, and implementing strategic operational improvements that simply can’t be accomplished during a sixty-day diligence process.
Sophisticated buyers aren’t just purchasing what your business has accomplished. They’re paying for what they believe it can become. Their perception of future risk and opportunity can materially influence both valuation and deal terms.
Two businesses in the same industry with similar financial performance can command dramatically different purchase prices because one is better positioned for future growth and carries less risk for the buyer.
Understanding what drives value within your industry years before a transaction provides something every owner wants: options.
Don’t Wait Until You’re Ready
Perhaps the greatest mistake owners make is assuming they’ll know when it’s time to sell.
Sometimes that’s true. Other times, life has different plans.
Businesses are sold because of retirement, health events, unsolicited offers, changing family circumstances, partner disputes, burnout, or simply because an opportunity presents itself sooner than expected.
In our experience, many owners sell earlier than they once imagined.
The goal of exit planning isn’t to accelerate a sale – it’s to ensure you’re prepared whenever the right opportunity arises.
The most expensive words a business owner can say are, “I wish I had known that five years ago.”
The earlier owners understand the specific levers that drive value within their business, the more time they have to capitalize on them.
Your Exit Plan Should Begin With a Team
The best outcomes are rarely the result of a single advisor. They are typically the product of thoughtful planning among professionals with different perspectives.
Years before an anticipated transition, business owners may benefit from beginning conversations around:
- How much is enough to achieve their personal and family financial goals?
- What planning opportunities should they be considering today?
- What characteristics would sophisticated buyers find most attractive – or concerning – about their business?
- What changes could materially improve enterprise value over the next several years?
Owners who begin asking these questions early tend to have more choices when the time comes to making one of the most significant financial decisions of their lives.
Time is one of the few advantages every business owner has. The earlier you begin planning, the more valuable that advantage becomes.
About the Author
Thomas Klewer is a Director at IndustryPro, an M&A advisory firm that helps business owners understand what drives enterprise value and prepare for what’s next—whether that’s continued growth, succession planning, or an eventual transaction. He regularly works with owners years before they’re ready to sell and provides insight into how sophisticated buyers evaluate businesses across numerous industries. To learn more about what drives valuation in your industry, email Thomas at Tklewer@industrypro.com.
Where AVID fits in
Thomas is right that the best exits begin with a team. On the legal side, that means making sure the way your company is owned, governed, and structured is ready for a transition long before one happens — and that your business plan and your estate plan are working together, not against each other. If you’re a business owner thinking about what’s next, our estate planning for business owners and exit strategies guides are a good place to start, and you can always schedule a free consultation to talk through the legal side of your plan. Let’s protect what you’ve built.
This guest article reflects the views of the author and is provided for general educational purposes. It is business and financial information, not legal, tax, or investment advice, and does not create an attorney-client relationship. Consult qualified professionals about your specific situation.
