May 12, 2026

Preparing for Exit

Show Notes
Transcript

Michael Barbarita of Next Step CFO and Powerful Business Strategies will discuss Preparing for Exit – You need at least 2 years to prepare for a successful exit. This show describes the things you need to work on.

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You have done to censure for you young.

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This is the pipe Man here on the Adventures pipe

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Man W four c Y Radio with our Positively pipe

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Man segment and this is where we talk about some

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powerful business strategies from Michael Barbarita or Resident Expert, and

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this week we're going to talk about preparing for exit.

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That is a very important subject for anybody that's a

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business owner because you should always have an exit strategy.

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And Michael, why don't you tell them why and how

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to do right well?

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Because someday you will be separated from your business. The

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question is will it be? Will be a great day?

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And so a lot of and a lot of baby

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boomers right now, which is a large part of the population,

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are selling their business. So from a demographics standpoint, a

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lot of people are looking for the exit. And you know,

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the exit isn't something it's not like selling a house

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where you just put a sales sign on it, or

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or you know, selling some type of asset that you have.

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It it's totally it's totally different.

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It involves and you know in my description I talk

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about how you need to prepare at least two years.

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It's probably close that the three would probably be the

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optimum amount of time if you're thinking about selling. It's

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not like you can't think about selling on January first,

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twenty twenty six and try to sell the business at

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the best price you can, but at the best price

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and an opportunity in twenty twenty and try to sell

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it in twenty twenty six. It's just it's just not

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the way to go about doing it right. Right, So, uh,

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some of the things that we have to you have

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to do is, first of all, you have to keep

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yourself keep the company focused on growth, because you do

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want to if you if you're gonna be selling the

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next couple of years, you do want to maximize your

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a profit because you know, that's why people buy a business.

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They buy it. They buy a business for two things.

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Number one, so the business they will pay and they'll

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pay more money for a business that is a business

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and not a job. Very important designation there that I'll

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get to in a moment, but uh, you know, and

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they and they and they will pay.

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They want to pay for opportunity. They want to.

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They don't want to they don't want to buy a

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stagnant business. They want to buy a growing business. So

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you have to constantly keep the eye on growth. Also,

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you have to reduce the reliance on you. The more

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you reduce the reliance on you, the more valuable the businesses.

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Why because people don't want to buy jobs, they want

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to businesses. And so if you if if if the

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if the buyer foresees that they have to do a

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lot of work, that they have to work eighty hours

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a week like you do. Uh, that's a problem because

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that's they're buying a job that that that doesn't work.

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So that I mean some people would do that, but

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that's but you get a low nickel, you get a

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low price. When that happens, it's you know, it's just

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that the the ebit, the multiple goes down.

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Mm hmm. You're gotta you're gotta make sure your.

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Accounting records are in shape because if a buyer, if

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a buyer goes in there and your accounting records are

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a mess, I mean, they're just gonna walk away and

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not even gonna give you remotely an opportunity to make

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an offer.

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Wow, good, right now, right, it's gonna be in line.

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The other thing is you you have if you're a seller,

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you have to understand your tax ramifications of the sale,

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because that one can blow you right out of the water.

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Depending upon the structure.

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One of the worst structures to sell is a C

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corporation because there's a doubt there's a double taxation associated

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with that. Yeah, okay, once to the company, they get taxed,

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and then you want to take the money out of

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the company and put it in your pocket, it gets

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taxed again. So uh, you have to really convert that

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C corporation to a subasse and that can cost you

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some money for sure, not just in preparation, but also

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more importantly in there's there's a there's this thing called

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the built in gains tax, which is a nightmare.

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But but but it's better.

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If it's better to convert and pay that built in

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gains tax, Uh, then not convert and pay the double

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tax when you sell.

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So if you're if you're a C corporation, get out

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of it.

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That's but in the meantime, understand the tax ratifications. You've

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got to you've got to understand all your state planning ratifications. Okay,

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you want you want to.

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Make sure that if there is a sale.

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And uh, if you're not around, you want to make

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sure it goes into the right hands, or if there

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is a sale and you are around, you're now gonna

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be hopefully, uh, dealing with a pile of money that

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you have to you know, properly a state planned for,

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so that that's another important consideration. Strategic buyers are always

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willing to pay more, even though they don't let on

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that they will. M okay, So a strategic buyer is

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somebody who is in the same business or or serves

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similar customers that.

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Then you do.

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They already have the overhead base and all all they're

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doing is piling your sales onto their overhead base, so

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a lot of that profit falls to the bottom line.

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They're willing to pay more. They won't let on that

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they are, but they are are, so looking looking for

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strategic buyers is a way to maximize the purchase price.

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You should have evaluation.

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Done on the company, not.

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That and by the way, most valuations that have done

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are definitely overstated the price in my opinion, but it's

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good to have because it's an overstated price, and it's

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good to get an overstated price. So usually evaluation is

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something that you should do. It during that two to

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three year period, you're going to find a good business attorney.

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Without a good business attorney, somebody who understands how to negotiate,

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somebody who understands business and law, because no matter what

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the what the case is, there's usually there's usually a

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couple of crisis points in like every deal, and you

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need a lawyer who understands the business ratification so they

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can negotiate on your behalf, because you don't want to

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sit there and negotiate all that you know, certainly the

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main the major terms and negotiated, but all the mickey

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mouse terms that can actually ruin a deal that those

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are our best served between the attorneys. And if your

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attorney understands the business concepts, they're going to have a

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leg up on the other attorney during that type of negotiation.

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So that's critical as well. You've got to understand. You've

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got to decide what your role is going to be.

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Some sellers stay with the company in this capacity that

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they were in when they were the owner. So that's

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the other components. What role do you want to play?

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Some are just you know, consultants to the business and

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they get paid for that. By the way, don't blow

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that one. If you're a consultant to the business. Uh,

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you should get paid for that. And by the way, UH,

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that's earned income versus capital gain on the business, and

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that might be taxed at a lower rate. So you

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might be able to allocate purchase price toward a consulting agreement,

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which is something that you might not do any work on,

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but you might answer questions from time to time, and

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you're probably willing to do that at a price, and

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you should and you should be, but you can allocate

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purchase price to that. You can also allocate purchase price

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if you own the building, you can allocate some purchase

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price to increase rent. That helps because the building will help.

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The depreciation on the building will help offset some of

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that extra income. So it's just another way to manage it.

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When I sold my businesses too, I used to allocate

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price toward telephone numbers and different types of intangible assets.

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Now these you know. At the time when I did it,

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it was a five year right off. Now it's fifteen,

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so it's not as much of an advantage. But the

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more assets you could allocate purchase price to usually the

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better you off tax wise. But you should consult your

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tax attorney or your tax your tax person on that.

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So there's a there's just a bunch of things and

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my list is even longer. But there's just a lot

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of things that you need to do to prepare for

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a sale. It's not one of these things where you

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just put a sign out or you know, just ask

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a couple of people if they want to buy.

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I want to buy, I want to buy, I want

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to buy. It just doesn't work like that, No, don't, right. Uh.

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And if you want to use a broker, there's a

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lot of reputable brokers out there, but you've got to

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be careful because there's a there's brokers who really don't

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understand business and uh, because there's really no there's no

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license to be a business broker per se.

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There really is, and they love to spam you.

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That's right, they do. Yeah, that's another thing. Uh.

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But those are those are the main points in terms

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of if you're going to be selling a business, you've

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got to prepare for it. And you know, like I said,

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there's a lot more points you have to think about

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as well, but those are those are the critical ones

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that I think if you if you understand those types

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of things and plan ahead for those types of things,

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you're going to be in good shape.

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Very cool, and uh, yeah, it is very important. I

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think it's very important that somebody consult with an expert

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on something like this so that they don't make any mistakes.

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And that's where I think they need to reach out

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to you, Michael and next Step CFO. How can they

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reach out to you and get more information on how

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to do a proper exit strategy or anything else haven

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to do with any powerful business strategies.

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Well, they could go to next STEPCFO dot net. They

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could go to the contact page and ask any question

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they'd like. But they also could take advantage of our

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AI Business Assessment Diagnostic, which is UH. It's an AI

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diet gnostic. It takes less than ten minutes, and it

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will find hidden revenue in your business, and it will

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identify three key strategies as it relates to your business

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through the AIH questions that are asked and and uh

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it will also explain how to go about implementing those strategies.

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And it's free.

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UH and it you know, the beautiful thing about the

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AI assessment everybody everybody says.

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Oh a I I AI.

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Well, the beautiful thing about it is there's you know,

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there's there's no no advisor with you or anything like that.

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It's and there's no judgment. You know, you could you

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could be right honest, honest engine with it, and uh

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the results will reflect your honest answers and and you'll

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find hidden revenue in your business. So it's a great opportunity.

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It's the orange button on the right. It says find

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hidden revenue in less than ten minutes and that's the diagnostic.

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Nice.

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Well, thanks again once again for your words of wisdom, Michael,

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and we'll look forward to talking with you next week

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about cash management.

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Thank you.

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That's important one too.

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There you go.

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Thank you for listening to the Adventures of Pipeman on

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w for CUI Radio.

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