Issuing options or equity compensation? Quantive performs appraisals for 409(a) reporting requirements.
Our Exit Planning Process
Analyze: Company Value and Your Estate
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?