Planning a Successful Exit Webinar: The Importance of Knowing Your Business’s Value Today

The Milestone Team April 25, 2023

Webinar Overview:

The webinar had 2 incredible panelists:

Pat McDonald: Managing Director at Milestone. He works in two capacities as a fractional CFO and the leader of Milestone’s Market Readiness service. Prior experience included working for a private equity firm to buy and sell businesses and in the healthcare technology sector helping to scale businesses. 

Mark Nicholson: Head of Partnerships and Growth at Baton. Previous to Baton, Mark worked in a revenue based financing company, and helped grow businesses in the health and wellness space.

Webinar Summary:

The Planning a Successful Exit webinar was pioneered by two staggering statistics: 

  1. 98% of small business owners don’t know an accurate valuation of their business, yet 70% would like to know. 
  2. 250,000 business owners will attempt an exit in the next 10 years, but only 6% will do it successfully

The panelists dive into why this is and how to be on the right side of the statistics. 

Three Reasons Knowing Your Business Valuation is Important:

Many small business owners are more focused on growing than selling their business. If this is you and your business is in the midst of growth, you might be asking: “Why is a business valuation important?” The webinar gives these 3 points as insight:

  1. Nicholson emphasizes that knowledge is power. Having accurate data on the strengths and gaps of your business from an outside perspective provides direction on how to grow. Both McDonald and Nicholson frequently referenced a comparison to selling a home. A perfect home valuation would tell you exactly what your home is worth now, and what major areas could be improved to increase that value. A business valuation can do the same. 
  1. It is a reliable checkpoint. Every business needs an exit strategy. If you want to sell your business at a 50 million dollar valuation, you shouldn’t fly blind and hope it is at 50 million when you want to sell. A business valuation is a checkpoint that the arc of your business is aligning with your exit goals and strategies. 
  1. McDonald highlights that the average entrepreneur has 80% of their net worth or more tied up in their business. This staggering number proves the need for a roadmap so that entrepreneurs can exit when they want and how they want. Business valuations are a starting point. 

Five Reasons 94% of Businesses Will Fail To Have a Successful Exit:

  1. Unreliable Financials and Forecasts – Many small businesses have unreliable bookkeeping and forecasts. Best practices and tidying often take place too late in the process of going to market. Investors will see through these forecasts and unreliable books and lose confidence in the business resulting in much lower offers or no offers at all. Companies need their financials in order. 
  2. Sales Tax – While sales tax is a part of financials, McDonald references it as a top 3 killer of deals. In the webinar, he discusses a story of an HVAC company improperly charging sales tax to customers, ultimately resulting in a multi-million dollar adjustment to the purchase price more than a year after the business was purchased. Sales tax practices need to be smooth for businesses to be able to sell. 
  3. Inexperience – Most entrepreneurs have never sold a business before.Nicholson highlights the importance of advisors to gain an advantage, ensuring you are in that 6%.. 
  4. Culture Fit – People are a huge part of selling a business. HR and payroll practices have to align as well. In the case of a merger, the culture match has to be right. In the case of handing over leadership, the new leader has to feel like the people will rally around them as well. Buying a company just to change or lose all its people is not worthwhile. 
  5. Diverted Attention – Nicholson highlights the tendency of small business owners to work in the business. They are still putting out 90% of fires as entrepreneurs. This diverted attention ends up hurting the valuation of the business. Selling the business is a lengthy, detailed process, so full attention is needed to learn and navigate that time period. 

Milestone’s Market Readiness:

Milestone’s Market Readiness service is to provide an intentional outside perspective to clean up and improve the business with the goal of taking the business to market in the near future. McDonald states: “We find that the best businesses today act as if they are going to sell in the next 60 days.” Milestone’s market readiness service helps small businesses prepare for a successful exit or fundraise. 

Baton and Free Valuations:

Baton is a marketplace for entrepreneurs to buy and sell businesses. Even bigger than that, Baton wants to play a part in having small business owners know, grow, and sell their businesses. A main service Baton provides is free business valuations. Baton does an NDA look at a small business’s total well-being with a focus on their financials to give an accurate assessment of what a business owner is worth. They provide feedback to small business owners to help them know their business, so that they may then grow their business to the point where they will sell it. 

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