Issuing options or equity compensation? Quantive performs appraisals for 409(a) reporting requirements.
Our Exit Planning Process
Analyze: Company Value and Your Estate
We are experienced. We’ve been in your shoes and exited our own companies. We’re also certified, credentialed, and ready to jump in.
To begin with, we start by understanding your company value, and how that value fits into your broader estate / financial plan. Why? Studies continue to show that for most entrepreneurs their company is their single largest asset. Transferring (i.e. monetizing) that asset is a fundamental prerequisite for retirement:
This Looks Complicated.
Why this process? It looks like a lot of moving pieces, right? First, it’s because exiting a company is difficult. It’s not like selling a house or a car – it’s a big asset with many stakeholders involved, and with a lot at stake.
Second, remember our Keys to the Exit diagram? This process helps us hit on these broad areas – the ones that most frequently present roadblocks to an eventual transaction. If you aren’t thinking about all three phases your likely to encounter difficulties as you get closer to a transition.
So Where Do We Start?
The beginning of the process always begins with the same two steps: we want to understand corporate value now, and we want to understand how that value plays into your broader estate.
Step 1a: Valuation
We use a formal valuation to go deep on what is driving or limiting value in the company. This ultimately sets the table for all future exit planning activities.
- Realistic Planning Number. In our experience – which spans thousands of engagements and real world transactions – nearly all entrepreneurs overestimate value. It’s critical to take an honest look at current value and this underpins all other exit-related activities.
- Develop a Roadmap. A big part of valuing a company is developing a risk profile: What enhances value in this company? What risk factors are present? How does the risk profile of this company compare to peers? This exercise has a great side-effect: it helps us great a roadmap for areas to focus on to drive value growth.
Step 1b: Financial Plan
Once we have a firm valuation in place, let’s work through the rest of your portfolio and see how the addition of your business value plays into your retirement plans.
- Model in Business Proceeds. As you start to think about retirement, good financial planners will get granular on “sources and uses” – what funds will you have available? What do you need to spend on? Now that we have a realistic understanding of sale proceeds we can better model retirement needs.
- Re-allocate Risk. Financial planners and portfolio managers work in the world of risk management: one of their primary goals is to allocate a portfolio that accommodates your personal risk appetite and the likely risk of the underlying asset. One thing that they do not allocate against: the risk inherent in your largest asset: your company. Let’s take a step back and understand just what your total exposure is and how it impacts portfolio modeling.
The fundamental questions we are looking to answer in the “Analyze” phase are: What is the business worth? And will the sale or transfer of the company adequately support my retirement needs based on my lifestyle expectations?