Center for Rural Affairs advises farmers on preparing an exit strategy

Preparing Exit Strategy Places Success into Business Succession

Whether a business owner is in their 20s or 60s, they should be thinking about how to exit the business. According to a recent survey done by the Center’s Rural Enterprise Assistance Project (REAP), a number of rural Nebraska business owners are within 10 years of exiting the business.

In October, REAP co-sponsored a live video conference featuring Frank Haverkamp of Sunbelt Business Advisors, serving Nebraska and surrounding states. He serves as a business broker, introducing willing sellers to willing (and able) buyers. Frank has sold businesses valued anywhere from $11,000 to multimillion dollars.

Frank said that every business is going to sell; they either do it standing up or laying down. He described four kinds of buyers, listed from least favorable for the seller:

4. Auctioneer – the value of the business is next to zero. What has value (and very little at this point), is the inventory. How many times have we seen a “For Sale” sign in the window or, worse yet, locked doors, and had no idea the owner was ready to exit?

3. Family – it sounds like a good option, however, how do you as the owner negotiate at arms-length? What is fair for both parties? What does the buyer (family) do oftentimes for a down payment – ask the Parent?

2. Employees – the best potential buyer with the greatest potential for problems. While they know the business inside and out, it is difficult for the owner to keep it a secret when an employee knows. Again, arms-length negotiation may be difficult as well. Employees may also feel the need for “a deal” and may want the owner to carry the note.

1. Stranger – now, we are not talking a total stranger. Often the owner is from the area or used to live in the area. Almost all buyers are local. People will move for a job, but not for a business. This group realizes they have to borrow the money, and they create an environment that allows the buyer to negotiate at arms-length.

Using a business broker allows you to investigate your options without letting others (including your customers) know the business is for sale. While a realtor is a great avenue for selling your house, since their mission is to publish and promote, selling your business needs to be held strictly confidential.

Here are some things to consider when planning for your exit. Keep your books clean and accurate. Banks can only loan on what the taxes show are the proceeds from the business. A buyer and the banker will want at least three years of taxes to get a good feel for the cash flow (and debt service potential) of the business.

There is much more to consider when planning for business succession, including valuation. In Nebraska, call on your REAP Business Specialist for assistance in preparing your business for a successful transition. A podcast of Frank Haverkamp’s presentation is available on the University of Kearney website, http://www.unk.edu/acad/crrd/index.php?id=38712.

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