This story is part of a series about financial literacy for small businesses in the Ypsilanti area. It is made possible by University Bank.
Sassa Akervall, co-founder of Saline-based
Akervall Technologies, says the start of her business was the "American dream story." She moved from Sweden in 2000 with her otolaryngologist husband, Jan Akervall, and two young children. Jan Akervall saw the need to develop a mouthguard to protect his patients' teeth from the heavy equipment he used, so he developed one. The Akervalls would later discover that the device also worked well for their daughter's sporting activities. The mouthguard worked so well that the couple took the device to the sporting goods market. Since starting their business at their breakfast table in 2009, they've grown Akervall Technologies steadily and have an impressive global customer base.
Now seniors, the Akervalls are currently writing another chapter of their story: a successful exit strategy. It's something that Sassa Akervall, and other local experts, say that all small business owners need to build into their business' plotline.
"I think your business and what you've created is something that you're always going to be proud of. You want your work and legacy to live on," Akervall says. "It's important to have a plan for your business, beyond your role in it, because you want to be in the best place possible when you sell."
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Doug CoombeSassa Akervall.
A couple of years ago, the Akervalls thought they were ready to sell, but they discovered that they weren't in that best place.
"We wanted to dip our toes in because even though we might have thought of ourselves as spring chickens, we really weren't, and there might be other things we want to do," she says. "We learned during that process that we weren't ready. As we had conversations with multiple presumptive buyers, it became clear that we needed to plug away for a couple more years and think about what we could do better."
Setting up shop to come out on top
To prepare for her transition, Sassa Akervall analyzed her business' staff efficiency. Then, as of last summer, she stepped down as CEO.
"It took me that long just to be ready to do that and also make sure we had the right person in place to take over," she says. "If you just want to sell and be free and clear, you've got to show that you have a management that can run everything without you."
Sassa Akervall is also looking at her company's earnings before interest, taxes, depreciation, and amortization (EBITDA), a standard of measurement used to judge a business' performance.
"That's what we've been working on because people want to see that," Akervall says. "Ours was pretty healthy before, but in the last couple of years, it's really become evident that our changes have benefited us."
Teamwork makes the exit dream work
Ben Bolen, a wealth advisor with
University Bank, stresses that successful exit plans aim for a high sale value and continued success in the owner's absence.
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Rickey PortisBenjamin Bolen.
"There are steps to position a business for sale. We need to show the financials. We need to show that it can operate without you," he says. "We need to show that somebody else can run it successfully, rather than running it to the ground."
Bolen shares that, in the course of daily operations, many small business owners fail to plan for their exit. This is unfortunate, as the unprepared could face pitfalls.
"Sometimes things happen outside of an owner's control. They might have a sudden health crisis and need to sell," he says. "Something could happen overnight, but successful exit plans don't happen overnight. They're a multi-year process."
Bolen adds that business owners must be intentional and bring in trusted advisors to help them navigate an exit strategy.
"You need to have a solid legal and financial foundation, including estate plans and insurance," he says. "It really does take years of planning, whether it's a sale to another owner or just transitioning away to a partner, manager, or family member."
Mark Smith, who has founded a number of companies, including
MI-HQ, also advises other business owners to engage professional help in planning an exit strategy.
"You need to know how best to keep as much of what you're going to gain out of your sale as possible, and not give it all the way to the IRS," he says. "You need to pay your fair share, but there are certainly lots of strategies to consider."
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Doug CoombeMark Smith.
Having personally navigated a number of successful exits, Smith shares that the best situation is one where both parties have a win-win scenario.
"Maybe you need to be prepared to leave some dollars on the table for better terms for your employees, or so that you give your buyer a head start," he says. "Get help early, and often, because these are not things that you get in place without thought."
The long view
Small business owners should first think about their exit strategy and succession plan from the business's inception, according to Kate VanHorn. VanHorn is a small business owner and the financial advisor at
Washtenaw Community College's Entrepreneurship Center. She's personally experienced an exit from a business, and also supported a number of business owners in bowing out.
"Even if someone doesn't necessarily know their exact exit strategy, they want to have thought about it when they're determining entity," she says. "You want to know if you'll pass the business to your kids, if you want to be able to split it into stock shares potentially someday, or if you want to bring in investors. All of those things ideally happen in the startup planning phase."
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courtesy Kate VanHornKate VanHorn.
VanHorn says a 10-year exit strategy is ideal, but what she often sees is a two- or three-year plan. What matters most is that owners are able to sell when times are good. Selling at the last minute – such as when a person integral to the company's management passes away – will often cause a domino effect that impacts net profits. This impacts EBITDA and the company's valuation.
"The more a business can be turnkey, and you can show two to three years of tax returns with consistent financials of a consistent net profit, the better sale price you can get," VanHorn says. "But what often happens is people start looking to sell after the business is tanking. When that happens, the valuation price for sale plummets precipitously."
She also thinks that it's never a bad idea for small business owners to target who might buy their companies someday. Getting an attorney or financial expert to put feelers out to other business owners and having quiet conversations is ideal.
"In my heart I would wish for anyone who's run a business for 10, 15, or 20 years and who would like to exit, to gain their equity value," VanHorn says. "They've run their company and they put in the blood, sweat, and tears, and that has value."
Jaishree Drepaul is a writer and editor based in Ann Arbor. She can be reached at jaishreeedit@gmail.com.
Sassa Akervall and Mark Smith photos by Doug Coombe. Ben Bolen photo by Rickey Portis. Kate VanHorn photo courtesy of Kate VanHorn.