Do You Have a Scenario Exit Plan? - O'Keeffe and O'Malley

Do You Have a Scenario Exit Plan?

Oct 12, 2015

We believe every business owner should have a written exit plan stating either the year they would like to sell or exit the company, or when the business value reaches an attainable goal to achieve a target price.  Most owners don't have a plan in writing, but keep the year and price in the back of their mind, possibly sharing it with only their spouse.  Business owners who plan for an exit most often can achieve their price sooner or get a higher price when they do eventually sell.  Planning for different exit scenarios can also accelerate one’s selling price and could ease frustration among employees and family members.

Not many business owners prepare scenario plans for their business exit. Exit scenarios are the roadmaps that identify the many "what-if" situations (positive and negative) that one can plan for by putting major contingencies in place. Once in place, a plan can be implemented quickly by the owner, the employees or family members.  Being proactive in Scenario Exit Planning℠ can enhance the value of a business and save a lot of time and money in the future.

Different examples of Scenario Exit Planning℠ might include:

  • What happens in case of your death?
    Will your spouse step in?
    Will the business be sold to outsiders?
    Will employees run and eventually buy the business?
  • What happens in the case of your partner’s death?
    Will your partner’s spouse take over to replace your partner?
    Can you buy out your partner immediately or over a period of time?
    If so, how will the buyout be valued?
  • What happens if you or a partner becomes seriously sick or disabled?
    Do you sell? Do you keep paying the sick partner’s salary forever?
  • What happens if a partner gets divorced?
    Does your partner’s former spouse become an owner?
  • What happens if you and your partners decide to each go separate ways?
    Do you compete against each other? Is there an orderly exit?
  • What happens if you lose your top employees to competitors or abruptly quit?
    Are there non-compete and confidentiality agreements in place?
  • Is there a plan in place if your two largest clients leave to go to a competitor?
    Will you downsize and lay off employees?
  • What would you do if your bank called your loan?
    Do you know your options and do you have a back-up banker?
  • What would you do if your company had a major PR blunder?
    Do you have a PR firm on retainer or know whom to call?
  • What if your top suppliers quit selling to you?
    Do you have back-up suppliers in place?
  • What if your #1 competitor sells out to a conglomerate with very deep pockets?
    Will it change how you sell your products?
    Are your prepared to fight against someone with deep pockets?
    Should you sell to the conglomerate too? Is your business prepared?

A good exit plan will have a response ready in the event that any of the above scenarios happen. You may also want to detail your preferred buyer in the event of your unexpected death. You may prefer an internal sale, such as an ESOP, family members, partners, or key management. Or you may wish for an external sale to a private equity group, a strategic buyer, an individual, a competitor, or a recap. You will want to consider the risks, rewards, terms and tax consequences of selling to each entity. It may not just be about the highest price.

There are many other scenarios you can plan for too whether they are controllable or uncontrollable! Preparing the road map for your own scenario plan will help you and your loved ones and could yield a greater price for your business. For help with your own Scenario Exit Plan℠ please call us at 913-648-0185.